Foreclosures go through the roof

Carolyn Said, Chronicle Staff Writer

Wednesday, July 25, 2007


The number of Bay Area homes lost to foreclosure during the second quarter hit the highest level in almost two decades, and the region's homeowners also received a record-high number of mortgage default notices, according to a report to be released today.

California also set a record in the April-to-June quarter for the number of foreclosures, according to DataQuick Information Systems of La Jolla. The foreclosure records date to 1988, when DataQuick began collecting such statistics.

Statewide, homeowners received the most mortgage-default notices since the fourth quarter of 1996.

What's going on?

"A combination of little or no appreciation, and, in some markets, depreciation, and some pretty funky financing that has come back to haunt some borrowers," said Andrew LePage, an analyst with DataQuick. "People used risky financing to stretch beyond their means. Now, in all likelihood, they're either experiencing payment shock because of a reset from a teaser rate, or they see (higher payments) coming and are throwing in the towel early, if they think (home) prices might go down more."

Risky mortgages, especially higher-cost subprime loans to people with poor credit or no money for down payments, became a widespread phenomenon in 2004 and 2005. Many of those loans had lower rates for the first two years that rose substantially after that.

"Folks borrowed beyond their means in larger numbers because of how common creative financing became," LePage said.

In the Bay Area, 7,696 homeowners received notices of default in the quarter, up 164.5 percent from 2,910 in the same period last year. Lenders send default notices when a homeowner is behind on mortgage payments. The notices are the first step in the foreclosure process but do not always result in foreclosure.

[More local numbers ...]

"When prices were going up by double digits, anyone who fell behind on mortgage payments could stick up a 'For Sale' sign in their front yard and get enough to pay off the mortgage," LePage said.

DataQuick predicts that California foreclosures are likely to continue to climb because the conditions that lead to them still exist: rising default notices and flattening home prices.
Big numbers

-- 7,696 The number of Bay Area homeowners who received notices of default in the last quarter, up from 2,910 in the same period last year.

-- 53,943 The number of California homeowners who got notices of default, up from 20,909 from the same period last year.

-- 800 The percent increase of homes in California whose deeds reverted to bank ownership.

Source: DataQuick Information Systems