Monday, February 06, 2006

"It's only getting worse:" Sacramento Foreclosure Activity Highest in 3 Years

The rise in foreclosure activity has caught the media's attention. Sacramento County foreclosure activity jumped 31% in the last quarter of 2005. Read more here, here, here, and here. You can find more data and information at the DQNews website, including this blurb:

All regions of the state saw an increase in foreclosure activity, ranging from 10.5 percent in the Bay Area to 19.6 percent in Southern California (see chart). On a loan-by-loan basis, mortgages are least likely to go into default in Marin County. The likelihood is highest in the Central Valley and Inland Empire.
Today, the Sacramento Bee came out with this artictle:

It took less than eight months for Dustin Suposs' "American Dream" to become a nightmare. He and his girlfriend, both in their early 20s, got caught up in the better-buy-now mentality that fueled the Sacramento area's housing market last spring. They bought a $365,000, 1,550-square-foot home in Elk Grove with no money down. The result: A $2,300-a-month payment that was more than 2 1/2 times the rent they were paying. By December the couple were drowning in bills and debt. Now they're two months behind on the mortgage.

Experts say the pair are part of a new trend - a growing wave of distressed borrowers just beginning to hit Sacramento and across California. In December, lenders filed 321 notices of default in Sacramento County, the highest number in nearly three years, according to DataQuick Information Systems, which tracks county property records. Statewide, lenders in December filed defaults against 5,582 homeowners, the highest since March 2004. Such notices are the first step in the foreclosure process...

Already, many working with distressed borrowers see ominous signs that suggest foreclosure activity is picking up fast. "We're seeing the early indicators that it's only getting worse," said Pam Canada, executive director of the nonprofit Neighborworks Homeownership Center in Oak Park, which educates would-be homebuyers and helps existing owners stay out of foreclosure. "We're creeping into the dozens of calls per month (from owners behind on their payments), and that's higher than a year ago, when it would have been half a dozen a month."

Calls from homeowners in financial distress "are rising rapidly," said Jennifer Harris, executive director of Sacramento's Home Loan Counseling Center. Until recently, ever-higher prices allowed people to simply sell their homes and pay off the lender if they fell behind on payments. The appreciation also meant that, within a year or two, someone who bought with no money down and used risky, expensive financing would have enough equity to refinance into a conventional loan offering better terms and lower payments.

But for the past six months, home values in the Sacramento region have generally been stagnant. Appraisers and agents report only modest price gains in a few areas and small declines in others, especially for $500,000-plus homes. "We knew the rate of appreciation was unsustainable and would have to come down, and as it comes down into the single digits it might even go negative" for a few months, said John Karevoll, a longtime DataQuick analyst.

Experts have stressed for years that home prices couldn't possibly keep rising by 20 percent a year, but many borrowers didn't heed the warning. "Everyone was anticipating getting in (a house) at any cost and then letting appreciation in the market handle it in the next year or two," said John Arvanitis, president of Sunrise Vista Mortgage Corp. in Citrus Heights. "In theory, that's great if appreciation stays at certain levels, but it's not happening anymore."

Many in the real estate industry are worried scores of homebuyers will suffer payment shock over the next two years as their low introductory interest rates expire or their interest-only periods end. Some won't be able to afford the higher payments and will have to refinance, if possible, or sell - or possibly lose their homes in foreclosures...

"As grim as it sounds," Karevoll said, "foreclosure activity has a function: It's kind of the sanitation department of the real estate market."

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