The Foreclosure Report

"Mortgage Reset And Equity Strain": California

The Modesto Bee from California. "Foreclosures are soaring dramatically in the Northern San Joaquin Valley as homeowners struggle with rising mortgage rates, falling home prices and a stagnant real estate market. A higher percentage of Stanislaus County homeowners were in default on their mortgages last month, 0.47 percent, than in any other California county."

"Many Merced County and San Joaquin County homeowners also are in trouble, with default rates over 0.35 percent. Merced had the third highest percentage of defaults in California. San Joaquin had the fourth highest. The three Valley counties had more than 1,600 homes in default on mortgages in October. That's about eight times as many as in October 2005."

"While most homeowners in default typically can sell or refinance before foreclosure, the number of those who can't is growing. There were 128 homes in Stanislaus, Merced and San Joaquin counties taken over by lenders during October. Compare that with October 2005, when 10 homes were lost to foreclosure in the three counties, according to DataQuick."

"A new analysis predicts 4,866 homeowners in Stanislaus, 7,591 in San Joaquin and 2,309 in Merced likely will lose homes to foreclosure because adjustable-rate mortgages will push their payments too high during the next five years. That's on top of foreclosures caused by traditional problems."

"Christopher Cagan, director of research and analytics for First American Real Estate Solutions, recently published two studies on foreclosures, and his predictions for the Northern San Joaquin Valley aren't pretty. Cagan warns 'the double whammy' of adjustable mortgage interest rates on homes with little or no equity will force borrowers into foreclosure."

"Homeowners in the biggest trouble are those who bought homes with little money down and 'teaser' rate mortgages. Such adjustable-rate mortgages aren't new, but what's changed is the real estate market."

During 2004 and 2005, Cagan said, homeowners who had mortgages adjust to unaffordable levels had ways to get out of trouble. That's not the case now because home prices have dropped about 5 percent compared with last year in the Northern San Joaquin Valley."

"'Some homeowners will find it hard to sell or refinance because they may have little or no equity in their residences,' Cagan said."

"He calculated that about 19 percent of homes, that's nearly 1 in 5, that were purchased or refinanced since 2004 in the Northern San Joaquin Valley are likely to be foreclosed during the next five years because of what he calls 'mortgage reset and equity strain.'"

"Borrowers who agreed to such adjustable-rate loans with little or no down payments may not have comprehended what they were getting into, said Frank Mandella, president of the San Joaquin Valley chapter of the California Association of Mortgage Brokers. 'I'm sure some of those loans were made to people who did not understand the advantages and disadvantages,' Mandella said. 'Maybe they were not educated properly on how the lending program worked.'"

"Mandella, who owns Meadow Lake Mortgage in Stockton, said that during the past few years there were mortgages available for as much as 125 percent of a home's assessed value. 'They were designed for people to consolidate debt,' Mandella said. He said there also were loans for 103 percent of value to enable buyers to pay for a home and its closing costs."

Loans for more than 100 percent of a home's value have become rare, Mandella said, but there are still a wide variety of mortgages offered.

"Homeowners who choose the wrong mortgage and have their homes foreclosed may end up watching their property get auctioned on the county courthouse steps. More times than not these days, however, no one bids on foreclosed houses because lenders are owed more than the property is worth. That means the starting bid often is too high to attract buyers."

"Lenders then end up taking possession of the foreclosed homes, and they list them with real estate agents. Increasingly, those houses end up selling at a loss. 'They don't want to sit there holding onto it,' Cagan said."

"He estimated lenders may lose $1.8 billion because of foreclosures in the Northern San Joaquin Valley during the next five years."

posted by Ben Jones @ 11:38 AM