Foreclosures have flooded North County’s housing market, and indicators show that the waters will be rising, not receding through the rest of the year.
Just as April’s sales data was the best in months and provided some encouragement for real estate agents, the month’s huge foreclosure numbers offered more ammunition to housing market bears who see San Diego County’s housing recession dragging on for two or three years.
All indications are that North County will see more foreclosures, not fewer, come up for sale over the next six months:
– Fewer than half of San Diego County variable-rate subprime loans —- where interest rates jump after a set period and typically carry high payments because of a borrower’s poor credit score or low down payment —- have already seen payments escalate, according to a report by the New York Federal Reserve Bank.
– Of all North County foreclosed homes that went back to the bank within the last 120 days, 60 percent have not been listed on the market, according to a North County Times analysis of foreclosure, listing, sales and pending sales data. And there have been more finalized foreclosures —- 1,800 homes —- over the last four months than the previous seven months.
– Notices of default, the first step in the foreclosure process, have shot up in North County, reaching a peak for this recession of 1,100 in April, according to data from ForeclosureRadar, a California foreclosure tracking service. Notices of default preceed bank-owned foreclosures (widely viewed as the chief culprit of San Diego County’s home price decline) by six months to a year.
The data put foreclosure analysts at odds with real estate agents, who say that a flurry of buyer activity foretell a housing market recovery locally.
“I am more wondering when is this thing going to blow up, and you’re already talking about the light at the end of the tunnel,” said Ramsey Su, an investor and former real estate broker in San Diego. “It’s going to get worse before it gets better.”
Small-time investor could lose big
Many housing analysts said they think option-adjustable rate mortgages will further exacerbate the foreclosure problem. The loans allow homeowners to pay less than the interest accrued, meaning the amount owed on the mortgage increases, rather than decreases, with each payment.
Eventually, the mortgage balance becomes so large the lender forces the homeowner to pay all interest and some of the principal each month to start drawing down the balance.
For Diane Goodwin of Oceanside, that move would force her to lose two of her investment properties. And if the market does not improve, she said she could lose her other three homes, including her primary residence, over the next year and a half.
All five properties she owns carry the option mortgages, also known as negative amortization loans.
“Yup, big mistake,” she said. “However, we wouldn’t have any of them except the original house if we didn’t use neg-am, so it was a gamble. And at the time, it seemed like a good one. Obviously, we didn’t know what was going to happen to the market.”
There are 19,200 homes with neg-am, non-suprime loans in San Diego County, according to the Federal Reserve report. All of those loans are known as Alt-A, which indicates a more qualified buyer than subprime loans but less qualified than prime loans. In total, there are about 95,000 non-prime loans in the county, according to the data.
That prevalence has raised concerns among foreclosure analysts that neg-am loans will cause a new tidal wave of bank-owned foreclosures…
