Foreclosure nation? It's California and Florida

Update on this morning's foreclosure numbers from the L.A. Times' Scott Reckard:

The percentage of home loans entering foreclosure nationwide rose to a record level in the second quarter of this year, driven by the one-two punch of sharp home price declines and resetting adjustable-rate loans in California and Florida, the Mortgage Bankers Assn. said today.

More:

"The worst states are continuing to get much worse," Jay Brinkmann, the MBA's chief economist, said during a conference call discussing the trade group's second-quarter report on mortgage delinquencies. With a combined 18% of the population, "California and Florida accounted for 39% of all the foreclosures started in the country," Brinkmann said.

Earlier, from Bloomberg News: "Foreclosures accelerated in the second quarter to the fastest pace in almost three decades as interest rates increased and home values fell, prompting more Americans to walk away from homes they couldn't refinance or sell."

More, from Bloomberg:

Tumbling home prices are making it difficult for even the most creditworthy owners with adjustable-rate mortgages to sell or get a new loan as their financing costs rise, said Jay Brinkmann, chief economist for the Mortgage Bankers Assn. Prime ARMs accounted for 23% of new foreclosures and sub-prime ARMs were 36%, he said.    

"People chose the lowest payment option to get into some of the very expensive housing markets and now that prices are coming way down, they can't sell and they can't afford the higher payments,'' Brinkmann said in an interview.

Analysis: I agree with Brinkmann. Falling prices are causing foreclosures. How much longer will foreclosures continue to mount? As long as prices continue to fall. How much longer will prices continue to fall? Credit Suisse this week predicted prices are likely to continue falling for 12 to 18 months.

-- Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles

Comments

[Lou]

So what? It's called a correction.

[jag]

And more to come. Metro L.A. and Westsiders hold on tight as we are about to start free falling.

[Maggie Knowles]

The sooner the better, maybe once we foreclose our way through Alt-A option arms loans (which I believe peak in 2011), maybe home prices will become affordable here in Los Angeles. But who knows, I think allot depends on the presidential election.

[amir]

Rising foreclosures lead to lower prices. Lower prices lead to rising foreclosures. Sounds like a vicious cycle to me.

When will this stop? When real estate is dirt cheap, very affordable and provides for a very high interest, because that's when even careful investors and prudent buyers will march in, en mass, and start buying the enormous inventory.

We're so far from that, it's not even funny.

[Real Estate Guy]

L.A.'s not really following the national trends. I wonder if you can break this down for foreclosures in the L.A. area??

[Rational Renter]

Peter, I think your "bottom line" analysis is spot-on. As prices fall, more and more people are becoming insurmountably underwater and it's in their best interest to foreclose.

[anonymous]

Just wait until all those jumbos reset in the spring. Hoooeeee!

[John]

Peter: Your headline is incorrect. Foreclosures accelerated "TO their fastest pace" (correctly reported by Bloomberg) not "AT their fastest pace" (as your headline reads). Yes. the foreclosure rate is at highest level, but the pace at which the foreclosure rate is increasing actually decreased from the last quarter.

[Nelcisco]

Peter, its been established now in regards to Jay Brinkmann's data on what percentage of forclosure is subprime, prime and now Alt-a and metro LA and westsiders coming next which I agree, you can't dispute data. Here's my concern, I know its been dicussed but not enough. we just got a job report today that state we're at a 6.1% unemployment rate nationally, California I believe is just above 7% (if someone wants to confirm that please do)

Point being we've had foreclosure since the existance of RE
but just as fast as someone lost a home there was someone else waiting to snag it and with unemployment going up and inventory compounding upward, with lending standards becoming unbearabaly tight go figure, for "experts" to say we're not in a recession yet is irresponsible, I hope I'm wrong but we may bypass a recession into a depression.

[E]

23% prime + 36% subprime? That's only 59% Was 41% Alt-A?

[CD]

Will you be showing movies soon ? Because this is a long road to 2012. Repeating on and on , how surprised the analysts are on the real estate downturn, on the unemployment figures,( they will hit 8% very soon), calling bottom everyday, the Westside, blablabla... Laurel and Hardy would be nice. Actually watching the clowns on CNBC is very entertaining. They are counting on the few suckers left ,in a cave somewhere, to buy overpriced homes , so they can call bottom again Monday morning.

[Nick]

To Nelcisco:

Yep... welcome to the "see beyond the veil" club. Here's some more uncomfortable food for thought: the likely "solution" from our government, both in California and nationally, will be to "tax the rich", socialize the losses, and subsidize the unproductive downtrodden who incessantly insist on government handouts. Unfortunately, it's much easier now for wealthy and/or successful individuals to either shelter their assets, or leave the taxation jurisdiction altogether. That leaves the "rich", evil corporations and businesses as the sole source for the government to bleed dry while trying to subsidize everyone who's not part of the evil corporate machine.

Honestly, if you're thinking depression, you may not be thinking pessimistic enough. During the 1930's, we still had low debt, solid fundamentals, and enough industrial fortitude to weather the socialism storm long enough to get to WW2. Those Ponzi schemes are catching up, though, and I'm not sure the country had enough left to survive whatever New Deal the socialists will come up with this time. Moreover, it's unlikely there will be a world war to push out the entitlement attitude and force a reboot of our industry. We're in for a bumpy ride.

[Ace]

E,

23 and 36 percent numbers are the ARM numbers. The other 41 percent is most likely fixed loans.

[Nelcisco]

you hit the nail on the head Nick, in the '30's we got thru the depression because of solid fundamentals which today we are so off the scale of solid fundamentals that its all built on a house of cards which ought to be the biggest concern for economists

[mucker]

Gosh Nick, aren't you the cheery sort of war monger? You seem to be missing the news here that it's the corporate banks that are being bailed out by the government. It seems clear that the homeowner bailout will do little to nothing for the common joe (presumably who you mean by socialists). By the way it is the big companies that are getting subsidies and tax breaks from the American Gobment.
Those downtrodden have so many lobbyists in Washington that the corporate guys can't get near the politicians. Yeah sure? You are so biased it's like a throw back to the good old "rather dead than red" days. Oh yeah your eager for more of that killing ala VietNam.

[mbob]

+1 Amir.

If anyone wants to get scarified even more, read

http://www.prudentbear.com/index.php/commentary/guestcommentary?art_id=10109

The writer's a gold guy, so caveats aplenty, OK?

His last graph begs the question, "...when are we going to start paying for our little adventure in Iraq?"

[Kevin]

I've been reading this blog for a while and for as big of a problem everyone on the blog thinks it is, I've yet to hear of one person who has lost their home to foreclosure. Is this problem just affecting people with no computers? Amazing how many people said they have salaries over 200k, but yet we're doomed for a depression. please..have some faith in the economy that allowed you to get where you are.

[I Live in L.A., Too]

To Nelcisco:

Seasonally adjusted unemployment was 7.3% in California in July, but the unadjusted figures were 8.1% in L.A. County, 8.5% in San Bernardino County and 9.3% in Riverside County. August figures for the state should come out in two weeks, and those may be even higher.

[Vespatian]

If you think this is contained to the US - think again.

Here is the best rant I've yet seen and it's based in the UK:

http://www.bastardoldholborn.blogspot.com/

[Todd in WeHo]

I love watching all the "short sell" properties on the market. Note to realtors: don't call me, I'll call you.

[somedude]

I don't see how falling prices are the cause of foreclosures. If I buy a house and the value drops how does that affect my ability to make the payment?

Unless...I speculated on the value by chosing a loan that had an artificial low payment to begin with because I could never afford the house.

Therefore the real problem is affordability, and foreclosures are not the cause but the solution.

I guess my point is that everyone needs to stop trying to save us from the foreclosure crisis. We need them. More and faster.

[Rational Renter]

Somedude - because, believe it or not, an unfortunately humongous percentage of people who bought a house in L.A. in the last 4-5 years got ARMs because they couldn't afford the ridiculous prices with a traditional, fixed rate mortgage. That means that when the ARMs reset, most of them won't be able to afford their new monthly payments. And they won't be able to refinance (as was their original plan), because their homes are now worth half of what they paid for them.

[mbob]

Kevin

No, you won't find anyone here facing the agony and horror of foreclosure. That suffering is too personal, too horrible for a sufferer to idly speculate about "quo vadis."

Here, we're all eating popcorn while watching a horror flick. A safe scare, you know?

Just drive out to Riverside's blue tarp city if you want to hear personal tales of despair and remorse.

[shockg]

Kevin, I agree. It's funny how everyone on this blog makes $200K a year but there are no qualified buyers out there in the real world.

[Jeff S]

The comment section here picks up an interesting point about who actually posts comments.

It is clear to me from reading this blog for the last year or so that the average commenter is much better informed than the average person in this city (renter or homeowner). Unfortunately that is part of the problem.
Most homeowners don't have a clue and don't make 200k.

I would be interested to see the demographics of the commenters. I wouldn't say most make 200k but I am sure the median income is much higher than average (i would guess over 100k) and much higher represented in financial industries (real estate, wall street, etc).

Pete, how about a little anonymous survey to fill out. It might even help your bosses sell ad-space to this up-scale group!