Monday, May 08, 2006

A 'Recent Spike' Of Defaults In San Diego

The Voice of San Diego has this report. "The rate at which borrowers are foreclosing on their mortgages has doubled since last year, as high-risk financing has become the norm for home buyers in San Diego County. Local experts wonder whether the recent spike in foreclosures is a harbinger of horrors to come or of the much-hyped 'soft landing' for the local real estate market."

"In January 2005 no properties were seized by lenders through the foreclosure process in San Diego County. Every one of the homeowners who had defaulted on their loans managed to offload their property without the bank closing in on them. But last month, lenders seized 66 properties through foreclosure processes. That's almost as many as in the whole of 2005."

"'I anticipate that we're going to have substantially more foreclosures in the future, that's going to continue for a couple of years,' said Erik Weichelt, owner of San Diego REO Realtors. Experts also agree that intrinsic to the rising foreclosure rates is the preponderance of non-traditional loans being used to finance home purchases in San Diego County."

"In 2005, more than 70 percent of home loans in the county were interest-only or negative-amortization loans and 26.7 percent of loans made to homebuyers and those refinancing their mortgages were negative-amortization loans, according to Loan Performance. In 2004, that number was 9.9 percent. In 2003, it was 1.1 percent. In addition, the vast majority of loans issued in San Diego County in recent years have been adjustable-rate mortgages."

"Because the wide use of interest-only loans and negative-amortization loans is a new phenomenon, nobody really knows what will happen to all those loans if the real estate market continues to cool off.'

"Charles Jolly, president of the San Diego Association of Realtors, said most foreclosures are likely to result from the high number of speculators who invested in the real estate market. Only about two percent of all the homes in San Diego are bought and sold each year, he said, and increased numbers of foreclosures will only affect the small minority of people who have to sell their homes."

"There's little question that if the number of foreclosures continues to rise exponentially there will be an impact on local housing prices, the question is, then, how much the rates will rise and therefore how much prices will be impacted. Those are questions nobody can answer just yet, and the next few months in San Diego real estate will be the time for experts to watch what happens very closely."


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