California: Where troubled loans go to die

Check out this excellent piece of analysis by my enterprising colleague Tom Petruno today over at his latimes.com blog, Money & Co., taking a closer look at today's foreclosure numbers, and what they say about California. In short: troubled loans are more likely to go into foreclosure if they're in California.

From Tom's post: "California actually ranked below the national averages on delinquencies. A total of 16.9% of sub-prime loans in California were delinquent at the end of the first quarter, down from 18% in the fourth quarter.

The prime-loan delinquency rate for California was 3.52%, up modestly from 3.43% in the fourth quarter.

But Jay Brinkmann, research chief at the mortgage bankers' group, says the problem in California is that delinquent loans have less of a chance of being cured than in other parts of the country because of the severity of the price declines here. In other words, delinquencies are more likely to turn into foreclosures in the Golden State.

The first-quarter data bear that out: The percentage of the state’s prime loans in foreclosure soared to 1.49% as of March 31 from 1% three months earlier.

The national prime-loan foreclosure figures, for comparison: 1.22% as of March 31, up from 0.96% in the fourth quarter.

For sub-prime loans, the state’s foreclosure percentage surged to 14.6% from 10.6% at the end of last year, compared with national rates of 10.74% and 8.65%."

Read Tom's entire post here.

Thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo Credit: Los Angeles Times.

Comments

[househunting]

And the walking away continues....

[Cal]

"In other words, delinquencies are more likely to turn into foreclosures in the Golden State."

DQ has been reporting this effect for some time. Last time they said less than 1 in 3 were recovering / curing once they got into foreclosure and that number has been getting worse each quarter. Basically, the time to cure is before getting in default, once there the servicer has decided to write you off. Or alternately, once the borrower gets a NOD they might just give up trying.

From their last report:

"Of the homeowners in default, an estimated 32 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 52 percent. The increased portion of homes lost to foreclosure reflects the slow real estate market, as well as the number of homes bought during the height of the market with multiple-loan financing, which makes 'work-outs' difficult. "

I have a summary of the progression somewhere I'll post it tonight.

[E]

I love it.

Notice how they are able to show *improving* statistics when they throw the word "sub-prime" into their analysis?

"There is a light at the end of the subprime tunnel"

"Sub-prime delinquencies down for the Q1 08 over Q4 07"

Funny how they tailor their words in order to avoid the festering boil that is Alt-A.

I'll bet that In about 18 months we will hear about how surprised they are that Alt-A ended up so badly.

Question(s)...

Were there Prime Option-ARM's and Liars Loans? Or did every "Prime" borrower put down 20% and get a 30 year fixed in 05-07?

Were "Prime" borrowers qualified at teaser rates (based on their incomes) for ARM (of any flavor) loans?

[Valley Observer]

Interesting that so far Jay's post hasn't attracted any bitter comments such as are common here. Is that due to his writing style vs Pete's? Jounalist vs blogger?

[Valley Observer]

Make that Tom's article.

[Laker]

E wrote: :"...Were there Prime Option-ARM's and Liars Loans? Or did every "Prime" borrower put down 20% and get a 30 year fixed in 05-07?..."

You are joking right?
they were called prime mainly because of the FICO. According to statistics from the FED these primers had 30% Option or hybrid ARMS, and in California about 50%. Also many qualified on IO ARMS. Since they were prime many were 5 year fixed teaser rate, now rates start to adjust. Less than 10% used fixed rate loan...why? they were called loans for suckers...ask any loan officer during 2003-2007.

[Chris]

Everyone who lied on a loan application is immoral, GOD knows it, and will make you pay for it!

[anon1137]

For every borrower in Calif who got an NOD there must be five more who can afford their payments but are $100K, $200K, or more underwater without a prayer of ever recovering the previous value of their homes in their lifetime. If you zillow any street in Calif you'll find them.

How long will they hold out? There's a huge pipeline of future foreclosures out there.

[Rich]

This thought came to me while reading the earlier article about the renovated 700sf bungalows that people were still paying over $500k for; when the price bubble is so great, there will be intermediate buyers who fail to wait and end up making the same mistake as all the people who are getting burned today. Despite all the warning signs around them, the buyers of these bungalows still made the error of believing pricing based on inflated comps rather than common sense and will likely be upside down on their mortgages by a large percentage of purchase price in the next couple of years along with everyone shaking out today. 700sf is an inherently undesirably small space that seems unlikely to hold those values in a falling market, unless those of you local to that area can think of mitigating factors...

[Simon Salloom]

Pretty darn exciting-- isn't it? No, not really, not at all. In 2007 Brentwood had six residential property foreclosures. Santa Monica 90402 had zero foreclosures. Santa Monica 90403 had three, 90404 had five, 90405 had eight and 90401 had one.

In other Westside neighborhoods such as Playa Del Rey, there were four foreclosures in 2007. In Marina Del Rey there were seven and in Venice there were three. The neighborhoods of Westwood and Mar Vista/Palms were a little less fortunate. Westwood had fourteen foreclosures and Mar Vista had seventeen. Beverly Hills has remained strong with only four foreclosures.

This information and the rest of this article is on my web-site:www.westsidesimon.com

... go to the blog.

[Duke of Moral Hazard]

Simon, only reformed real estate salespeople who have done penance are welcome here. If you are reformed, how have you done penance? If you have used the phrase "Now is a great time to buy" in the past year, you are automatically disqualified. If you have told people there are offers on a home when there weren't, you are automatically disqualified.

If there was an offer on the home, and it was a verbal from your brother who said: "I'll buy it for $250k if no one else steps up," you are automatically disqualified. If you've ever steered a borrower into the hands of a mortgage broker who made 3-4 points on their loan and got a point or two kicked back, you are automatically disqualified. If you've ever used the term "architectural home," you are disqualified. What else... what else disqualifies real estate agents?