Foreclosure follies

Foreclosure activity is picking up the pace with Yuba County leading the state in its percentage increase in default notices, according to a report issued Tuesday.

Second-quarter 2007 notices of default nearly quadrupled in Yuba County over the same quarter a year ago, according to DataQuick Information Systems, a La Jolla-based real estate information services firm.

Default notices, the first step in the foreclosure process, went up 280 percent in Yuba County - the biggest county jump recorded by DataQuick. The 45 default notices issued last year rose to 171 in the second quarter.

Foreclosures climbed from four to 84 in Yuba County during the same time period.

DataQuick analyst Andrew LePage noted that the increase is from a small number a year ago.

“Yes, there’s a big, spectacular increase from unspectacular levels a year ago,” LePage said.

Statewide, DataQuick says that lenders sent California homeowners the highest number of default notices in over a decade. It blamed the surge on flat or falling prices, anemic sales and a market that is struggling with the excesses of the 2004-2005 buying frenzy.

Homeowners had been able to avoid foreclosure during a hot housing market when prices were rising by selling their homes or refinancing.

Fewer people have been able to dodge foreclosure lately, judging from DataQuick figures which show that roughly half of the homeowners in default, 54.6 percent, emerge from foreclosure by bringing payments current, refinancing, or selling the home to pay off their loans. A year ago that figure was 88 percent.

DataQuick attributes the change to a slow real estate market, plus homes bought with multiple-loan financing.

Yuba County’s median home price decreased by 10.4 percent in June 2007 compared with a year ago as the once-hot Sacramento housing market chilled, while Sutter County’s home prices were down 8.5 percent, said LePage.

“Sacramento is the weakest large market in the state,” said LePage.

There was some hope prior to Tuesday’s report that foreclosure activity might be on the way down but the numbers didn’t show it.

Foreclosure activity appears to be the flip side of a housing boom when lenders were willing to give to borrowers - even those on the edge.

“A lot of the loans that went bad last quarter were made at or just beyond the cycle’s peak, between summer 2005 and summer 2006,” said Marshall Prentice, DataQuick’s president, in a statement. “Appreciation rates for most of that period were in the double digits, and lenders let most households stretch their finances to the max and beyond. It’s that pool of beyond mortgages that the market is working its way through.”

Far from easing, foreclosures could keep climbing because of a large group of loans made in 2006 that have two-year fixed rate periods, according to the Center for Responsible Lending, a nonprofit, nonpartisan research and policy organization. The interest rates can reset in 2008, increasing the monthly payment amount.

“We’re expecting things are going to get worse before they get better,” said Paul Leonard, California director of the Center for Responsible Lending.

Tuesday’s report had no data on the extent of subprime mortgages in the foreclosure activity.

But if the Yuba-Sutter area follows national trends, subprime lending, which offers higher interest loans for borrowers with credit that is too poor for a more traditional loan, may play a role.

“We’ve seen nationwide that a substantially disproportionate share are coming from these subprime loans,” said Leonard.

The Center for Responsible Lending’s December 2006 study, “Losing Ground,” contended that subprime lenders are selling the most dangerous loans to the most vulnerable borrowers, leading to the largest rash of foreclosures in the modern mortgage market.

Homeowners with two-year, adjustable subprime mortgages comprise some - but not all - of the three foreclosure-related calls per week that Bimal Mann, president of Trinity West Mortgage Inc., of Richland Road, has been getting lately.

People whose incomes fell or who lost jobs can also face problems, as do homeowners whose “teaser rate” mortgage allowed them to get into a bigger home then they could afford, as well as those who borrowed against the home’s value to get equity.

“Some consumers just did it to themselves,” said Mann.

Falling home values also present a problem - particularly in pocket areas like Plumas Lake that have seen home values fall as much as $100,000 to $150,000, said Mann.

“The value dropping as fast as it’s been has not helped the situation,” she said.

BY THE NUMBERS

Notices of Default

2nd Q ’06 2nd Q ’07

Sutter 56 109

Yuba 45 171

Colusa 14 39

Sacramento 1,352 3,840

California 20,909 53,943

Foreclosures

Sutter 10 57

Yuba 4 84

Colusa n/a n/a

Sacramento 175 1,662

California 1,936 17,408

Source: DataQuick

Appeal-Democrat reporter John Dickey can be reached at 749-4711. You may e-mail him at jdickey@appealdemocrat.com.