Foreclosures dip in Sonoma County - but is it temporary?

<p>Foreclosures dipped again in Sonoma County during the first quarter but analysts warned the decline may be temporary, the result of a new state law that slowed the process.</p><p>Banks took back 421 homes from Sonoma County borrowers during the first three months of this year, down 21.7 percent from a year ago. Foreclosures have fallen the past two quarters and are now on pace to drop below last year’s record high, according to MDA DataQuick, a San Diego real estate research firm.</p><p>But a new surge of foreclosures could be building based on defaults, the first step in the foreclosure process.</p><p>During the first quarter, lenders sent notices to 1,241 Sonoma County borrowers who fell behind on their mortgages, down 10.8 percent from a year ago — but up 53.3 percent from the fourth quarter of last year.</p><p>Statewide, lenders filed a record number of mortgage default notices during the first quarter. The surge is a sign that lenders are playing catch-up after a temporary lull in foreclosure activity, according to DataQuick.</p><p>Foreclosures are expected to turn back up in Sonoma County by midyear and go even higher, pushing a new wave of distressed homes onto the market, said real estate agents who sell bank-owned homes.</p><p>“Eventually the banks are going to have to clear their books, take them back and sell them. They say they have major inventory that’s due to move in 30 to 60 days,” said Doug Solwick, a foreclosure specialist with Keller Williams Realty in Sonoma County.</p><p>Homeowners who had fallen behind on their mortgages gained a reprieve in September, thanks to a new state law designed to help borrowers stay in their houses. The law requires lenders to attempt to contact homeowners who were delinquent on loan payments, then wait 30 days before filing a default notice.</p><p>But the law appears to have just pushed defaults and foreclosures into future months, according to DataQuick.</p><p>“The activity does show that there’s still a lot of stress on household balance sheets. We get into a situation where it doesn’t take much for a homeowner that’s on the edge to fall off the precipice and stop paying their mortgage,” said Steve Cochrane, regional economist for Moody’s Economy.com.</p><p>The lingering recession magnifies the foreclosure problem because job cuts and income losses add further strain to homeowners’ finances and could drive more into foreclosure.</p><p>“So much depends on the labor market. It was last fall that we really saw labor markets cratering and that hasn’t eased up at all,” Cochrane said. “We could see foreclosures rise in the second quarter and probably rise further in the third quarter.”</p><p>Most vulnerable are homeowners who can’t afford rising payments on risky loans used to buy houses near the peak of the market. Next are homeowners who can’t sell or refinance and owe more than their home is now worth, with housing mired in a four-year slump.</p><p>Most loans statewide that went into default during the first quarter were made in mid-2006, when lenders still had lower borrowing requirements to help buyers purchase homes as prices hovered at record highs.</p><p>In Sonoma County most loans that went into default were made in spring 2006. Borrowers with primary mortgages were a median five months delinquent on their payments when the lender filed the notice of default. The typical borrower owed a median $13,578 on a median $400,000 mortgage, according to DataQuick.</p><p>Statewide, 8.5 percent of the loans made in 2006 have now gone into default.</p><p>“The nastiest batch of California home loans appears to have been made in mid to late 2006 and the foreclosure process is working its way through those. Back then different risk factors were getting piled on top of each other. Adjustable-rate mortgages can be good loans, so can low down-payment loans, interest-only loans, stated-income loans, etc. But if you combine these elements into one loan, it’s toxic,” said John Walsh, DataQuick president.</p><p>The lending institutions with the highest default rates for loans originated in August to November 2006 include ResMAE Mortgage (69.9 percent of loans resulting in a default notice), Master Financial (64.6 percent), and Ownit Mortgage Solutions (63.6 percent). Of the major lenders, IndyMac has a default rate on those loans of 18.9 percent, World Savings 8.0 percent, Countrywide 7.7 percent, Washington Mutual 6.3 percent and Wells Fargo 3.4 percent. Less than 1 percent of the home loans originated in late 2006 by Citibank and Bank of America have since gone into default.</p><p>The surge of Sonoma County homeowners falling behind on their mortgages is another indicator that the region’s home prices will continue to decline, at least through the first three months of next year, Cochrane said.</p><p>If foreclosures rise later this year, it will increase the large supply of properties for sale in the county.</p><p>Foreclosure sales have been strong as falling prices make homes affordable to a widening number of buyers. But sales must make a deeper dent in the supply before prices hit bottom.</p><p>“There’s a lot of distressed properties to work through,” Cochrane said.</p>