Distressed mortgages continued to drag on the troubled economy in June, as a record number of homes in San Diego County went into foreclosure and notices of default – the start of the foreclosure process – declined only slightly.
HOWARD LIPIN / Union-Tribune
Maricela Hitchner, who was making breakfast for son Aaron, 5, said she and her husband got a loan modification and avoided foreclosure on their home in Otay Mesa.
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A total of 1,838 homes went into foreclosure, an 18 percent increase of over the previous month and a 180 percent increase over June 2007, DataQuick Information Systems reported yesterday.
June notices of default reached 3,083, a drop of nearly 2 percent from May, but up 93 percent from a year earlier.
“The fact that notices of default declined from May to June is a positive sign,” University of San Diego economist Alan Gin said. “The big question is will that trend continue or is it a seasonal factor?”
Some analysts say the drop may reflect a greater willingness on the part of lenders to work with distressed borrowers.
Federal Reserve Chairman Ben Bernanke has urged lenders to be more flexible to slow the rising tide of loan defaults. Mark Goldman, who teaches real estate finance at San Diego State University, said lenders are awakening to the realization that they need to modify more loans to keep the shaky home-mortgage system from collapsing.
“I think we're seeing more mitigation,” he said. “I think the lenders are so inundated with properties they are becoming more open to modifications and forbearances.”
Analysts say the market is caught in a cycle in which falling prices and surging foreclosures have caused lenders to tighten credit. That has made it difficult for distressed homeowners to refinance and fueled the rise in mortgage failures.
“It would not surprise me if we peak in mortgage defaults sometime in the next one to three quarters,” DataQuick analyst Andrew LePage said. “But what really matters is when foreclosure activity will recede enough to release its grip on many housing markets, especially inland areas where post-foreclosure sales now dominate the resale market.”
Countywide, nearly 40 percent of all homes sold in June had been foreclosed on within the previous 12 months, he said. In neighborhoods where vacant, bank-owned homes dot the landscape, the figure can exceed 50 percent.
Rick Sharga, vice president of marketing for the RealtyTrac research firm, said he doesn't expect foreclosures to bottom out here until next year. Risky adjustable mortgages that were taken out during the housing boom will continue resetting at higher interest rates well into 2009.
As potential home buyers anticipate the market reaching its bottom, they are delaying purchases.
“When prices fall as dramatically as they have, we should have seen more buying activity,” Sharga said. “Buyers are reluctant to jump in for fear that they will be buying into a market that will be devalued further.”
Foreclosures in the second quarter of 2008 increased 31 percent over the previous quarter and 180 percent over the second quarter of 2007. Notices of default in the second quarter increased 6 percent over the previous quarter and 117 percent over the second quarter of 2007. Entry-level neighborhoods, where risky subprime lending was widespread during the recent housing boom, have taken the brunt of the blow from mortgage failures.
County neighborhoods hit hardest in the second quarter of 2008 were north Oceanside with 215, Nestor with 211, Chula Vista/Eastlake/Otay Ranch with 189, east Escondido with 174, and Spring Valley and south Chula Vista, each with 163.
Communities with fewer than five mortgage failures in the second quarter included Coronado, the two Rancho Santa Fe ZIP codes, Boulevard, Pine Valley, Julian, Descanso, Sorrento Valley, Pauma Valley, Jacumba, Warner Springs, Santa Ysabel and Palomar Mountain.
Statewide, DataQuick also reported yesterday that lenders started foreclosure proceedings on a record number of homeowners in the second quarter.
Mortgage servicers recorded 121,341 notices of default. That was up nearly 7 percent from 113,809 for the first quarter, and up 126 percent from 53,943 in second-quarter 2007.
Nationally, RealtyTrac has reported that foreclosure filings – default notices, auction sale notices and bank repossessions – were reported on 252,363 U.S. properties during June, a 3 percent decrease from the previous month but a 53 percent increase from June 2007. The report also shows one in every 501 U.S. households received a foreclosure filing during the month.
San Diego County's shortage of homes will bring buyers back to the market sometime next year, predicted Kelly Cunningham, economist with the San Diego Institute for Policy Research.
“I think San Diego will be one of the first (regions) to hit the bottom of the housing market,” he said. “There is a lot of pent-up demand still and there are some bargains to be made as investors jump into the market. We won't be seeing prices like this in the future.”
Emmet Pierce: (619) 293-1372; emmet.pierce@uniontrib.com
