Highest percentage of homes with default/ foreclosure filings:
Filing change / market pct. from ’09
- Las Vegas 6.6% / 9.0%
- Fort Myers, Fla. 5.0% / 30%
- Modesto 4.6% / 14%
- Merced 4.5% / 35%
- Riverside/ San Bernardino 4.4% / 23%
Lowest percentage of homes with default/ foreclosure filings
- Utica, N.Y. .02% / 12%
- Burlington, Vt. .03% / N.A.
- Charleston, W.Va. .04% / 54%
- College Station, Texas .11% / N.A.
N.A.: RealtyTrac estimates that the number of foreclosures more than doubled during the year in these areas, but accurate comparisons are not available because of data collection changes.
a faster rate than most other areas. RealtyTrac said properties with default
and foreclosure filings rose more than 8 percent nationwide in the past year,
compared to a 14 percent decline in San Diego and 13 percent decline statewide.
“We’re definitely not out of the woods,” cautioned Gary London, who heads
San Diego’s London Group Realty Advisors. “Even though we project foreclosures
will keep dropping, that will happen frustratingly slowly. On the other hand,
factors are coming together that will lead to an improving market, with fewer
people losing their jobs, more being hired and a higher confidence on the
part of homeowners not to do something drastic.”
London projects that the county will average 2,135 defaults per month this
year, 33 percent lower than 2009’s average of 3,192.
But the improvement is not necessarily as glowing as it seems at first glance.
Even though foreclosures are dropping, debtors are still losing their homes,
often by selling them at a loss through “short sales.” And analysts warn
that a number of factors could lead to another spike in foreclosures, including
weakness in the job market, mortgage rate adjustments and a “shadow inventory”
of debt-laden homes that have not yet hit the market.
“There’s certainly a risk we could see a second spike in foreclosures,” said
RealtyTrac spokesman Dan Blomquist. “Although San Diego and California have
been consistently (improving) over the past six months, the trend is fragile,
and if we don’t start seeing job growth soon, we could see a second bump.”
Some factors weighing down the market include:
Short sales
Even though foreclosures are on the decline in San Diego County, there has
been an increase in short sales, with banks allowing borrowers to sell their
homes at a loss. Short sales are less costly to banks than foreclosures and
do not do as much damage to the borrower’s credit rating. But even though
they don’t show up in the foreclosure numbers, they do indicate weakness
in the market.
The California Association of Realtors estimates that 25 percent of the homes
sold in San Diego County were “distressed properties,” which includes foreclosures
and short sales. Although that’s down from 44 percent in June 2009, real
estate analysts say short sales are on the rise, with encouragement from
the federal government, which is promoting them as a way of finally resolving
the real estate crisis.
Gary Laturno, a San Diego attorney specializing in helping debtors deal with
lenders, said he is dealing with an increasing number of short sales. His
firm closed 90 transactions last year with lenders, including more than 45
short sales. Although this year is only half over, the firm has already closed
60 transactions, including 34 short sales, meaning it is on track for at
least a 33 percent increase this year, said chief financial officer Vikki
Kuick.
Unemployment
In the first stage of the recession, most San Diegans going into default
were people who had taken out risky loans to buy homes they could not afford.
Today the defaulters are more likely to be middle-age, middle-class breadwinners
who have lost their jobs and can no longer keep paying their mortgages.
Laturno’s firm is currently dealing with several out-of-work construction
contractors who never took out any risky loans, who have been out of work
for two years and have no prospects on the horizon. “They’ve blown through
all their savings trying to keep their homes,” Kuick said. “I don’t see any
letup in that.”
The longer that the local jobless rate, currently at 10.5 percent, continues
to hover in the double digits, the more likely that homeowners will go into
default or try to sell their homes, economists say. Statewide, 18 percent
of home sellers in 2009 said they were selling because they lost their jobs
— and the jobless rate is higher now.
Mortgage resets
When the real estate crash began three years ago, it was largely because
“subprime” borrowers — typically people with poor credit ratings — were unable
to afford their houses as the interest rates on their adjustable mortgages
moved upward. Bruce Norris, who heads The Norris Group, a real estate investment
advisory firm in Riverside, said that problem is almost over. Only 9 percent
of subprime adjustable-rate mortgages in San Diego County have not yet adjusted
upward, totaling around 1,900 homes.
But Norris warns that the county is little more than halfway through its
problem with “Alt-A” adjustable mortgages, which targeted a more upscale
clientele than the subprimes. Norris estimates that 44 percent of those loans
will adjust in 2010 and beyond, totaling 17,500 loans, which could give rise
to a new round of foreclosures if the borrowers have the same problems making
payments as their subprime counterparts did.
The ‘shadow inventory’
Real estate analysts warn that there is also a “shadow inventory” of troubled
homes that have not yet been put up for sale but could spur more foreclosures
as they hit the market.
Definitions of the shadow inventory vary, but some components include REOs,
homes that are in delinquency (with mortgages overdue by 30 days) instead
of default (overdue by more than 90 days) and homes that have not been put
into default even though the owners long ago stopped paying their bills.
Norris said that particularly in the upper end of the market, lenders sometimes
don’t press for an immediate default, foreclosure or short sale since they
hope that be the time they do take action, the market will have improved
enough to get a higher sales price on the property.
“It can take a very long time between when somebody quits paying the mortgage
and when the bank files a notice of default,” Norris said. “The idea is that
they’re trying to wait for things to improve, but the marketplace is just
not filled with capable buyers right now. And the growth of short sales means
that there’s an absence of normal sellers.”
Norris and other analysts warn that if the REOs and the homes held by nonpaying
or delinquent borrowers started flooding into the marketplace, they would
drive prices lower and push foreclosures and short sales higher. But London
said that even if some debtors are able to escape default while skipping
their mortgage payments, he doubts that’s a widespread policy by banks. He
added that the shadow inventory is much smaller than many analysts say.
“Even if you put all the shadow-inventory homes up for sale today, it would
only add several months worth of supply to the market, which might slow things
down but would not have a lasting impact,” he said.
Blomquist said lenders are already beginning to reduce the shadow inventory
through short sales, adding that they have been “very careful about not flooding
the market with too many REOs at once.” On the other hand, he said, their
success depends on the economy improving enough to provide a larger supply
of buyers. If that doesn’t happen, he warns, “you could see another surge
in foreclosures.”
Glossary of a downturn
Mortgage delinquencies: Mortgages that are more than one month overdue on
their payments.
Mortgage defaults: Mortgages that have received a notice of default saying
they are more than 90 days past due.
Foreclosures: Homes that are seized by banks after receiving a notice of
default. Currently, it takes an average of nine months to move from default
to foreclosure.
Real estate owned (REO):
Property that has been seized by a lender and is
being temporarily held on the lender’s books.
Short sales: Homes that are sold at a loss to resolve outstanding mortgage
debts.
Default rates
San Diego has the 31st-highest rate of default nationwide, with 2.3 percent
of housing units having foreclosure and default filings, according to RealtyTrac.
But it has been improving its default rate while the national average worsens.
BY DEAN CALBREATH, UNION-TRIBUNE STAFF WRITER
