HIGHEST RATE IN 14 YEARS AS PAYMENTS BALLOON
By Sue McAllister
Mercury News
Article Launched: 07/25/2007 01:29:19 AM PDT
With monthly payments rising for homeowners with adjustable-rate mortgages, more Santa Clara County borrowers defaulted on their loans in the second quarter than any time in the past 14 years, a real estate information firm reported Tuesday.
A total of 1,275 default notices were sent to Santa Clara County homeowners in the second quarter, up 20.5 percent from the first quarter of 2007, and 140.6 percent from the April-to-June period in 2006, according to DataQuick Information Systems. The county mirrored a trend in which defaults spiked statewide to an 11-year high, climbing 158 percent from a year earlier.
However, Santa Clara County's homeowners are among the least likely state wide to be in default, DataQuick said.
Only homeowners in Marin, San Francisco and San Mateo counties are less likely to be in default than Santa Clara County owners.
Most of the loans that defaulted in the second quarter were originated between summer 2005 and summer 2006, DataQuick said. Then, many lenders were offering mortgages with low "teaser" rates for the first two years of the loan, allowing many people who may not have qualified for traditional loan terms to become first-time buyers. Now the rates on those loans are climbing, and many owners can't afford the new payments, said Michelle Gutierrez, local president of the National Association of Hispanic Real Estate Professionals, which has held foreclosure-prevention classes in the county this year.
"People
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are getting notices that their payments are going up anywhere from $800 to $2,000 more," she said. "They got into this home that they thought was going to appreciate - of course that's what we all want - but it's just not happening. They have no equity and they have to go back to renting homes."
The number of California homeowners who actually lost their homes to foreclosure hit a record 17,408 last quarter, DataQuick said.
The default notices are the first step in the foreclosure process, and are typically sent to homeowners who have failed to make their mortgage payments for a few consecutive months. Foreclosures and defaults were relatively rare in Santa Clara County and the Bay Area in 2004 and 2005, when rising home appreciation and a seller's market meant that most homeowners who found themselves in financial distress were able to sell their homes and pay off their lenders. But with appreciation now flat or falling in many areas, that's not as feasible these days.
In the Bay Area, very few foreclosed-upon homes have been resold at prices that significantly undercut the market, so there's no evidence to show that foreclosure activity is directly responsible for dragging down home prices in the Bay Area yet, said DataQuick's John Karevoll. But that could change: He said defaults are likely to increase in the third quarter as more of the huge number of loans made in 2005 hit their rate-reset dates.
The foreclosure situation in the San Jose area is nowhere near as serious as in such places as the Central Valley or Inland Empire (San Bernardino and Riverside counties), but some local homeowners are hurting nonetheless. Annette Kirkham, senior attorney with the Fair Housing Law Project in Santa Clara County, said her organization has received about 80 calls or walk-ins per week since May from people who feel they were misled into taking out mortgages they could not afford, and who are facing or in the midst of foreclosure.
"With minor variations, it's the same kind of story over and over again," she said.
Peter Van Dam, a Coldwell Banker associate broker who specializes in listing properties that have been repossessed by lenders, said three of the 18 such listings he has were sold at auction in the past week. Two were three-bedroom houses in San Jose's East Side, priced at around $600,000 a few months ago. At a crowded public auction held Saturday in Concord, he said, one house sold for $420,000, the other for $445,000.
"How is a couple of $450,000 comps (comparable sales) going to change the market? The more of those auction prices hit the market, the more downward pressure we'll see on prices," he said. Van Dam said he thinks lenders are only now beginning to sell the homes they repossess after foreclosures - called REOs in the industry, for "real estate owned" - at a significant discount compared with previous sales.
Last quarter, 256 homeowners in the county lost their homes to foreclosure. The peak for the county was in the second quarter of 1994, when 296 foreclosures were recorded.
Realty agent Robert Aldana of radio program "Let's Talk Real Estate" said prices could fall for another year or so in the neighborhoods where values were inflated based on the easy availability of no-money-down loans for which borrowers did not need to provide verification of income.
"Home values have to drop to the level where people who live in certain areas can afford to own," he said.
Both he and Gutierrez noted that a much higher percentage of for-sale homes than normal are being sold as "short sales," in which the owner is selling for less than what he or she owes to the mortgage lender, in order to avoid foreclosure.
Contact Sue McAllister at smcallister@mercurynews. com or (408) 920-5833