California Home-Loan Defaults Rise to a Decade High (Update2)
By Daniel Taub
House for sale, San Diego July 24 (Bloomberg) -- California mortgage defaults rose to the highest level in a decade in the second quarter as falling home sales and higher interest rates battered the housing market.
Homeowners received 53,943 default notices, more than double the 20,909 filed a year ago, DataQuick Information Systems, a La Jolla, California-based provider of real estate data, said today in a statement. Last quarter's default level was the highest since the fourth quarter of 1996, when 54,045 notices were recorded in California.
Californians are struggling to repay home loans as mortgage rates jumped to an 11-month high and tighter lending standards limited their ability to refinance. Southern California home sales last month slumped 36 percent to the lowest for a June in 14 years and San Francisco Bay Area sales fell 26 percent to a 12-year low, mirroring the national slump, DataQuick said last week.
Most of the loans that went into default in the second quarter were originated between July 2005 and August 2006. Loan originations peaked in August 2005. At the top of the market, when price appreciation rates topped 10 percent, lenders let many households stretch their finances beyond what they could afford, DataQuick said. Those borrowers are now at risk of default.
`More to Come'
``We're going through a lot of that activity,'' DataQuick analyst John Karevoll said in an interview. ``There's more to come.''
Default notices are the first step in foreclosing on a home. Such notices in the second quarter rose 15 percent compared with the previous three months. About half of homeowners stop the process by catching up on payments, refinancing or selling their homes to pay down debt, DataQuick said. A year ago the figure was 88 percent.
The number of defaults resulting in foreclosures is the highest since DataQuick began keeping records. The previous high was in early 1994, when about 30 percent of defaults resulted in foreclosures, Karevoll said.
Only 55 percent of homeowners are able to avoid foreclosure because a greater number now have multiple loans on their properties. In the past, when a homeowner had just one mortgage, the lender would often allow the borrower to sell the home for less than the amount owed on it and take the loss, known as a short sale, Karevoll said.
`You Get Nothing'
``They can't do it that way anymore because the primary lender can't tell the secondary lender, `We'll take all of the sales price here and you get nothing,''' Karevoll said.
The number of default notices sent to homeowners in California, the most populous U.S. state, has averaged 34,172 quarterly since DataQuick, a unit of Richmond, British Columbia- based MacDonald, Dettwiler & Associates Ltd., began tracking the data in 1992.
The number of homes lost to foreclosure totaled 17,408 in the second quarter, the highest in DataQuick's statistics, which date back to 1988. The losses were up 58 percent from the previous quarter and ninefold from a year earlier. The prior peak of foreclosure sales was in the third quarter of 1996, when they totaled 15,418.
Default notices reached a record in the second quarter in Riverside, Contra Costa, Sacramento and most Central Valley counties, DataQuick said. Those areas are considered ``spillover markets'' for buyers who couldn't afford houses and condominiums in such areas as San Francisco and Los Angeles, where defaults have increased at a slower rate, Karevoll said.
``L.A. has just weathered this remarkably well,'' he said.
On a loan-by-loan basis, home loans were least likely to go into default in Marin, San Francisco and San Mateo counties in the second quarter. The likelihood was highest in San Joaquin, Merced and Riverside counties, DataQuick said.
The rate for a 30-year mortgage was 6.73 percent for the week ended July 19, up from 6.15 percent two months earlier, according to Freddie Mac. |
