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

[sheila]

i've been saying this all along! plenty of normal, responsible people used normal, acceptable ARM financing, KNOWING they could re-fi within 3-5 years. even greenspan was lauding these types of loans, which have been successful for 15+ years, and are a great choice if you can get a low rate and/or are planning on moving soon. because you could always re-fi out of them... until now.

these are not "negative amortization" or other weird loans that rely on the house drastically appreciating. all it needs to do is basically hold its ground or lose less than 10% or so over the first 3-5 years, which most people felt secure that houses would do, especially when they bought in 2003 - mid 2005 (these are the ARMS that are resetting now).

after that, the bubble was getting ridiculous, and they "should have known better," about holding value, but regular ole ARMs were always an ok way to finance till now, and a lot of normal people are getting screwed for doing a totally normal thing - not specuvestor, flipper, greedy whatevers. just normal people. personally, since the rates for ARMs were not that much cheaper than 30-year fixed, i don't see a compelling reason to have used one, but they were not "risky" till now, and it's too late for the 2003 buyers to change course.

i still see people on this blog saying things like "because you can always refinance" when debating the merits of a low price/high interest rate vs. a high price and a low interest rate. well, guess what? just because you always could before, doesn't mean you always can now.

these banks need to just adjust the rate to a normal fixed 6% for 30 for these responsible homeowners. not for people who can't afford their houses, just for the ones who took a 4.75 instead of a 5.5 for the first few years and now can't get the appraisal to get the 6%. a total forfeiture is too much of a punishment for doing a totally normal, respectable ARM 4-5 years ago.

and no, i'm not anywhere near any foreclosure, not trying to refi, whatever. as always, i'm fine, no skin in this particular game, so spare me the personal attacks. just talking about the topic here...

[Still Waiting on the West Side]

i've been reading this blog and other bubble blogs for almost 2 years now...hoping for some answers and solid evidence that prices in Venice or Santa Monica will start dropping so that i could some day afford a starter home (yes, our household absolutely brings home more than $200 k/year and we still can't afford to get in.) But over and over and over i read "just wait, ARMS are resetting this spring...or this fall..or next year...and we're really going to see the sky fall!" Yet there has been no significant price drop in these zip codes.

[anonymousgal]

I'll toss in my personal data, if it helps at all. I'm even going anonymous, so nobody can accuse me of exaggerating.

Single-income, four-person family, two adults and two very young children. $111k annual salary - electrical engineer, 9 years out of college. Excellent credit, no debts. Looking for a 4/2 in south Orange County, but won't raid the kids' college funds for a down payment. Waiting for the houses we want to hit around $350k.

[Joey C]

Yeah, and the stats just keep getting worse. Check out www.socalforeclosurehelp.com

But there are still ways of negotiating with lenders or doing a short sale to avoid foreclosure. Most folks just don't know how to halt the proceedings.