Yet More Foreclosures in the Pipeline

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I got a chance to chat with Joseph Galascione, the real estate broker who was mentioned in the San Diego Daily Transcript a couple weeks back as having authored what appeared to be an interesting study on local foreclosures.

It turns out that the study in question is freely available at the website of Galascione's brokerage, ERA® Metro Realty, and that it is very informative after all.

Galascione and his colleagues analyzed county deeds of trust to see how many San Diego home mortgages were going to reset between January and June of 2008. For each of these mortgages, they determined the likely increase or decrease in mortgage payment upon reset. They also calculated the loan-to-value ratio (LTV) at purchase time, this just being the amount of the loan (or loans) on a home divided by the home's value when the loan was taken out.

Those loans for which the payment was expected to increase by $500 or more and the LTV was greater than 80 percent were categorized as being at "high risk for foreclosure." (20 percent equity may seem like a lot, remember that these figures represent the LTV at the time of purchase or refinance, and prices have gone down substantially since many of these loans were taken out). If the loans had reset amounts of $500 or more but LTVs between 60 percent and 79 percent, they were at medium risk for foreclosure. All other loans were deemed to be low-risk.

What they found was that of the 8,052 San Diego loans scheduled to adjust in the first half of 2008, 3,561 (44 percent) were high risk and a further 842 loans (10 percent) were medium risk. The peak months for high- or medium-risk resets during this period will be April and May. The study suggests that, because of the delay between the first missed payment and the actual home foreclosure, any foreclosures resulting from resets during these two peak months will hit the market around November and December of 2008.

The study's authors are most concerned about North County, where Oceanside, Vista, San Marcos, Escondido, and Carlsbad are singled out as being home to many resetting high-risk loans. Conversely, the more mature markets -- Del Mar, Bonita, Coronado, San Diego, and La Mesa are noted in specific -- will experience fewer high-risk resets because homeowners in these markets are more likely to have owned their homes longer and thus to have more equity.

All in all, while the situation will differ from one area to the next, it looks like the prevalence of foreclosed homes in the San Diego market will be with us for at least another year.

-- RICH TOSCANO