Record county foreclosures
With more than 70 homes a week seized, reports offer hope for slowing defaults
Published: Friday, October 24, 2008 at 5:01 a.m.
Last Modified: Friday, October 24, 2008 at 4:53 p.m.
Foreclosures soared to another record in Sonoma County and a growing number of the region's homeowners are falling behind on their mortgage payments, according to a pair of reports issued Thursday.
But even as financial pressures mount on homeowners, there are signs that a new state law is forcing banks to delay foreclosure proceedings and attempt to help borrowers hold onto their houses.
Mortgage defaults -- the first stage of the foreclosure process -- declined in California for the first time in three years, according to MDA DataQuick, a San Diego-based real estate data firm.
However, the toll from the mortgage crisis continued to widen despite desperate attempts by government and the financial industry to stop its spread.
Lenders seized a record 933 homes in Sonoma County during the third quarter -- or more than 70 homes a week -- up from 788 in the second quarter and 201 a year ago, MDA DataQuick reported.
Banks have now repossessed 3,015 homes in Sonoma County since the beginning of 2007, or 2 percent of the county's 150,000 homes and condominiums. Nearly a third of the foreclosures occurred in the past three months.
There is one glimmer of hope.
The number of mortgage defaults fell 26 percent in Sonoma County between the second and third quarters, the first significant decline in four years.
Currently, lenders are sending out default notices when borrowers miss five monthly mortgage payments. In Sonoma County, lenders recorded 1,021 defaults in the third quarter, down from 1,376 defaults in the second quarter. A year ago, lenders sent 749 default notices during the third quarter.
Defaults would have remained near record highs if not for a new state law, MDA DataQuick estimated.
Under the law, which took effect in early September, lenders must attempt to contact homeowners who had fallen behind on their mortgage payments, then wait 30 days before filing a default notice. The lender's representative must be someone with authority to renegotiate loans.
The law had an immediate impact: During the first week of September, before the law took effect, roughly 2,000 default notices were filed each business day in California. In the week after the law kicked in, average daily filings plunged to less than 100, then went back up to around 500 a day the final week of September.
It is too soon to determine whether the law is simply postponing the inevitable or whether it will reduce the number of foreclosures.
Because a foreclosure typically takes four to six months, or longer, the new law probably won't affect foreclosure counts much before the end of this year, predicted John Walsh, MDA DataQuick president.
"It's unclear just how much foreclosure activity will be time-shifted into future months," Walsh said in a statement. "A lot of the market's distress is working its way through the system and the spectacular jumps in activity may be behind us. Or it may be that those processing the default paperwork are just maxed out."
Still, there is no evidence that financial pressures are easing on cash-strapped homeowners in Sonoma County. In fact, a growing number of local homeowners are falling behind on their mortgages, according to a study by FirstAmerican CoreLogic.
The study found 4.4 percent of Sonoma County mortgages were 90 or more days delinquent in September, a number that has grown steadily this year.
"The fundamental market conditions indicate further stress going well into 2009," said Mark Fleming, chief economist for FirstAmerican Core-Logic, a real estate research company.
With foreclosures mounting and distressed properties selling at bargain prices, mortgage brokers said some lenders are willing to change loan terms and lower payments to assist homeowners.
"Loan modifications have started picking up. They're willing to do modifications because there's just too many foreclosures," said Oscar Rodriguez, a mortgage broker with Simpac Financial in Santa Rosa.
"Some lenders are actually willing to work with you before you start falling behind," said Rodriguez, who has helped about 30 clients modify their loans.
Contacting a lender before you miss a payment is best, Rodriguez said. Doing that helped one client, Tomas Hernandez, negotiate a lower interest rate and reduce his monthly mortgage payment by $600.
"My money was running out," Hernandez said.
A mason, Hernandez is getting fewer jobs with home construction and remodeling sluggish during the housing downturn.
"I look for money everywhere. I do a lot of side jobs," he said. "I'm trying to stay in the house. I think I will keep the house with the new payment."
The weakening economy and job losses could push more homeowners into default. Particularly vulnerable are those who relied on risky loans with low initial payments that explode when higher interest rates kick in, known as a loan reset.
A majority of these loans have already reset, but homeowners still facing a payment jump are more likely to default now due to tighter lending guidelines and the steep decline in home values, Fleming said.
"Clearly, more people are still going into default on their loans," he said.
Most loans that went into default in the third quarter were taken out between October 2005 and February 2007. Those in default were a median five months behind on payments and owed $11,184 on a $345,000 mortgage.
Of the homeowners in default, an estimated 20 percent emerge from the foreclosure process by bringing their payments current, refinancing or selling the home and paying off what they owe. A year ago it was about 46 percent.
Overall, lenders recorded 94,240 notices of default on homes in California during the third quarter. While defaults dropped 23 percent from the second quarter, due to the new law, they remained 30 percent higher from 2007 levels.
Statewide, lenders took back 79,511 homes from borrowers who had stopped making their mortgage payments, up 26 percent from the second quarter and 228 percent from a year ago.
You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.
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