Two-Thirds of California Defaults End in Foreclosure: Report
Borrowers in California -- always the Golden State, but now also the center of possibly the worst housing crisis since the Great Depression -- are finding loan workouts increasingly tough to come by as price depreciation has put millions upside down on their existing mortgage debt. Among homeowners in default, only an estimated 32 percent emerged from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owed during the first three months of 2008; the rest -- that's more than two-thirds of troubled borrowers -- ended up losing their homes on courthouse steps throughout the state. One year ago, the percentage of loan workouts in California stood at about 52 percent, according to La Jolla, Calif.-based DataQuick Information Systems. Compounding the problem, DataQuick said, was a massive reliance by California borrowers on multiple-loan financing during the housing boom -- so-called "piggyback" loans, where a borrower takes out a second (and perhaps even a third) mortgage in order to finance their home purchase. Multiple-loan financing peaked in Q4 of 2006 at 60.9 percent of all financed home purchases, DataQuick said. Last quarter it was 15.9 percent. Calculated Risk blog -- shows what California's 2008 NOD total would look like if volume remains constant at first-quarter levels throughout the year. "The main factor behind this foreclosure surge remains the decline in home values. Additionally, a lot of the 'loans-gone-wild' activity happened in late 2005 and 2006 and that's working its way through the system," said Marshall Prentice, DataQuick's president. "The big 'if' right now is whether or not the economy is in recession. "If it is, the foreclosure problem could spread beyond the current categories of dicey mortgages, and into mainstream home loans," he said. The question of a recession really shouldn't be a question at this point, and it's worth noting that a recent report from Standard & Poor's found that prime jumbos were beginning to show clear signs of stress beginning in March. For more information, visit http://www.dataquick.com.