Foreclosures rise in Sonoma County

<p>Foreclosures jumped 22 percent in Sonoma County during the third quarter, but there are signs that lenders are working more closely with borrowers to keep them in their homes.</p><p>Lenders reclaimed 585 homes in Sonoma County during the third quarter, nearly seven foreclosures per day, according to a report released Tuesday by MDA DataQuick, a San Diego real estate research firm. It marked the largest number of foreclosures in a year, up from 478 in the second quarter.</p><p>However, lenders are sending fewer mortgage default notices, a step that precedes foreclosure. Mortgage defaults declined 6 percent in the third quarter, compared to the preceding quarter, although the 1,282 notices remain close to record levels set in early 2008.</p><p>The decline in default notices was similar statewide and signaled to some experts that borrowers who can no longer afford their mortgages are receiving more opportunities to hold onto their homes. Banks are offering to renegotiate loans or to allow short sales, where owners sell for less than they owe on mortgages.</p><p>“Lenders are increasingly steering people into other avenues,” said Andrew LePage, an analyst with MDA DataQuick.</p><p>For lenders, the most cost-effective solution may be to renegotiate loans and keep the existing homeowners in their houses, especially if that approach avoids a flood of foreclosures that might further depress home prices.</p><p>“They have a larger incentive to try to restructure the loans,” Robert Eyler, a Sonoma State University professor who heads the school’s Center for Regional Economic Analysis.</p><p>Foreclosures in the county peaked at 933 properties in the third quarter of 2008. Even though foreclosures were well below that figure in the third quarter, they remain at least 10 times what they were for the first six years of this decade.</p><p>The number of struggling homeowners remains high. Almost one in 10 U.S. homeowners with a mortgage was at least one payment late, and thus delinquent, in August while another 4 percent had entered the foreclosure process on their loan, the Mortgage Bankers Association reported. Four states — California, Florida, Arizona and Nevada — have a disproportionate share of the foreclosures.</p><p>California recorded nearly 112,000 default notices from July through September, down 10 percent compared to the prior quarter. And, as in Sonoma County, the number of foreclosures jumped, rising nearly 10 percent to 50,000.</p><p>At Catholic Charities in Santa Rosa, close to 300 people sought help last month from the nonprofit group’s foreclosure counseling services. Those numbers remain as high as ever, said Marcela Christian, the foreclosure counselor.</p><p>“There is a little bit more willingness by the banks to avoid foreclosures,” she said.</p><p>Lenders have allowed struggling homeowners to take part in a modified loan for a trial period, often about three months, Christian said. After the trial period, the loan can be permanently modified.</p><p>However, she said, only rarely do homeowners see a reduction in the principal amount owed on the loan. Instead, the lender usually lowers the interest rate and extends the length of the loan in order to reduce the monthly payments. Delinquent payments typically are added into the remaining principal.</p><p>James Madison, a real estate agent who specializes in foreclosure properties, said the number of foreclosures is rising in Sonoma County. But he also suggested that lenders are trying to avoid a repeat of last year, when home prices dropped sharply in part because of the availability of so many bank-owned properties, known in the industry as REOs, short for real estate owned.</p><p>“I don’t think they’re going to let the market get saturated with REOs again,” said Madison, a Coldwell Banker agent in Santa Rosa.</p><p>Loans made in the summer of 2006 are continuing to cause problems for borrowers and lenders. Among the loans that went into default this year, they typically were originated in July 2006, MDA DataQuick President John Walsh said. Loans issued by Countrywide, Washington Mutual and Wells Fargo experienced the largest number of defaults.</p><p>“There’s a batch of truly nasty loans that were made in mid 2006. There’s another batch made in late 2006. These are worse than the mortgages before and after, and it’s taking a long time to process them,” Walsh said.</p><p>On primary mortgages, California homeowners were a median five months behind on their payments when the lender filed the notice of default. The borrowers owed a median $12,665 on a median $343,200 mortgage.</p><p>Madison and others predicted that a significant turnaround in the foreclosure market remains a long ways off. Some worry that a prolonged period of high unemployment could set off a new round of troubles.</p><p>“There may be a second wave of foreclosures unless our economy turns around,” said Eyler.</p>