Tuesday, December 19, 2006

(Sub)Primed for Foreclosure

From the SF Chronicle:

As many as 2.2 million Americans with subpar credit could lose their homes through foreclosure over the next several years, a new report said. California will see some of the sharpest increases in foreclosure rates among what are known as subprime borrowers because the deflation of the housing market here is making it increasingly difficult for distressed homeowners to sell or refinance....

The number of subprime loans has jumped over the past five years in California as the housing boom drew people into the market who were counting on rapid price appreciation to pay down debt.
From the Sacramento Bee:
As an unprecedented housing boom ebbed this year, consumers with blemished credit histories increasingly fell behind on costly mortgages -- faltering under the weight of monthly payments that adjust upward and prepayment penalties that block an escape.

Now, a North Carolina-based lending policy group contends that 21 percent of so-called "subprime" loans taken out in 2006 by Sacramento-area borrowers are likely to end in foreclosure and aggravate an already flat housing market. The nonprofit Center for Responsible Lending, in a report released Tuesday, estimated that, by comparison, just 4.8 percent of the people who took subprime loans before the housing boom, between 1998 and 2001, experienced foreclosure.
...
However, DataQuick Information Systems analyst John Karevoll and other real estate experts say rising subprime foreclosures are likely to affect housing values in a limited number of neighborhoods, rather than in the region as a whole.
...
The Center for Responsible Lending said it couldn't immediately determine the actual number of subprime loans taken during the first nine months of 2006 in the Sacramento region. But 2005 brought 26,800 subprime home loans to the region, according to another nonprofit subprime lending analyst, the San Francisco-based Community Reinvestment Coalition.
...
A fall in California housing prices has also aggravated such loans, preventing people from selling the house to get out of trouble. "If the loans are less than a year to 18 months old, there's limited equity for them to refinance," said Pam Canada, executive director of Sacramento-based Neighborworks Homeownership Center, which advises people on how to buy homes and keep them. "That's what they've always done to prevent foreclosure."
One more. From the Central Valley Business Times:
Holders of so-called "subprime" mortgages are in danger of losing their homes, especially in the Central Valley, according to a report from the Center for Responsible Lending. As much as $164 billion in mortgages is at risk due to foreclosures in the subprime mortgage market, it says.

With 25 percent of the mortgages issued this year being subprime, Merced County ranks as the nation’s most risky area for foreclosures, according to the report. Other Central Valley areas are not much better, it says. Bakersfield ranks second in the nation; Fresno is fifth; Stockton is seventh and Visalia-Porterville is 13th. In contrast, Yuba City ranks 152; Sacramento 28; Modesto 205; Madera 29; and Hanford-Lemoore, 152.

"We project that one out of five (19 percent) subprime mortgages originated during the past two years will end in foreclosure. This rate is nearly double the projected rate of subprime loans made in 2002, and it exceeds the worst foreclosure experience in the modern mortgage market, which occurred during the 'Oil Patch' disaster of the 1980s," the report says.
You can find the report here [pdf].

11 comments:

Lander said...

Hat tip Gwynster & JR.

Merced Going Quickly said...

Merced is #1.

Yes, we're leading this crash.

Full speed ahead!

sippn said...

Couldn't find the copy of the report so I looked for other info...

"While foreclosure properties tugged property values down by almost 10 percent in some areas nine years ago, the effect on today's market is negligible, DataQuick reported. "

Am I a trouble maker?

Gwynster said...

"Am I a trouble maker?"

Oh sippn...

That's like asking "Leslie Appleton Young's lips are moving. Is she lying?"

**winks**

You do like to keep us on our toes.

Lander said...

The links should be working now. Thanks to all who contributed.

Anonymous said...
This comment has been removed by a blog administrator.
Lander said...

From News 10 (also video clip):

Foreclosure Crisis Hits Sacramento Region

The Center for Responsible Lending authored the report which ranked the Sacramento area as one of the real estate markets to be hardest hit.
...
In the Sacramento area the number of foreclosures has quadrupled compared to five years ago and the study predicts it will get worse, particularly for African-Americans and Latinos.

patient renter said...

One more thing to think about with this is that EVERYONE who took out an adjustable loan when rates were low has the potential to get hurt badly as rates reset. This doesn't just include the people holding sub-prime mortgages but includes everyone. None of them are safe.

Anonymous said...

Food for thought.

OK - 20-25% of the loans originated in the subprime market in central CA will fail within the next five years. The big question is: what percentage of all mortgage loans are subprime? And what is the definition of subprime - or, in the alternative, prime?

Have these loans been made mostly to lower income folks buying lower end houses or have a significant number of these loans been made to buyers of upscale homes? Are they made normally to buyers of existing or of new homes?

If these loans are overrepresented in certain neighborhoods, then local neighborhood foreclosure rates could be substantially higher.

One interesting item in the article is the quantification of the impact of a foreclosure on house prices locally over the next two years. Each forclosure cause a price decline of 0.9% to 1.44% for neighboring houses. The article does not define neighboring, however.

sippn said...

Heres some Subprime data (you too can google it)

"The default rate for subprime loans historically has been well above that of prime loans. The Mortgage Bankers Association says the numbers are improving, with 2.4% of prime loans past due in mid-2004, compared with 10.04% of subprime loans. Those subprime past-due figures are down from 15.67% in mid-2002. Still, 4.61% of subprime loans were in foreclosure in mid-2004, above the 0.49% prime figure" Money 2004

OK at 25% foreclosure rate of subprimes, thats about 2-3% of the total market or more. A dent at best. Looks like we're 60% higher than the 2002 rate...I guess thats why they're subprime. Subprimes are about 13-15% of market? correct me...

Lander, Max all you... I'm listening carefully (and reading the fine print) and am making some adjustments to what I do in real estate. But its fun to pick at some of this...

Anonymous said...

As a homeowner and a landlord for many many years, I think you all sound crazy and speculative. I have watched that valley market go up and down. Bought homes, sold homes, lived in homes, bought and sold ranches. 1 thing I have learned and my father always told me....."They aren't making anymore land!" With all the hiccups it always ends up turning around and going back in the up direction. If you are sitting on the sidelines waiting for the sky to fall, your crazy, interest rates are 30 year lows and eventually will balance back out, now is the time to buy with mucho buyers incentives and very attractive rates. But if you want to sit on the side and pay someone like me rent more power to you. Currently I have the best renters I have ever had in 19 years. 700+ credit scores and some even pay the rent before the first! I am also getting the highest rents I have ever received. You are wrong about rents too, a very recent article in the Modesto Bee just talked about how rents are going up due to the number of qualified buyers sitting on the sidelines waiting for the sky to fall and choosing to rent instead. Timing the market is tricky, just like with stock. You are better off getting in and riding the wave than sitting on the sidelines waiting. Real Estate is not a speculative invesment and no-one including a homeowner should be trying to buy and sell real estate within 3 years. That is how you get burned. It is a hold and as long as you can weather the storms in the long run you come out ahead. If you want to pay for my home rather than your own, I love it and say thank you! I'll reep the rewards 5-10 years from now and laugh all the way to the bank!