The Future of Foreclosures

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Earlier this year I wrote about Joseph Galascione, a San Diego real estate broker who does some serious digging into the local mortgage pool to try to ascertain the prevalence of future foreclosures. Below are some conclusions from Galascione's recently released study of mortgages due to reset in the third quarter of this year. The study, incidentally, is freely available at the website of Galascione's firm, ERA® Metro Realty.

To review the premise, a resetting loan is considered to be at "high risk for foreclosure" if the borrower made a down payment of less than 20 percent and the monthly payment is expected to increase by at least $500 upon reset. (If the 20 percent cutoff seems overly severe, keep in mind that prices have dropped substantially since most of these loans were taken out -- so depending on timing and location, a borrower could have made a 20% down payment and still have no equity at this point).

In total, of the 5,722 mortgages scheduled to reset in July, August, or September of this year, 2,606 are considered to be at high risk for foreclosure. That's 45 percent. And while the percentage of high risk loans is about the same as it was in the first two quarters of 2008, the total number of high risk resets in the third quarter will actually be 46 percent higher than it was, on average, in first two quarters.

Due to the time lags involved, Galascione expects that any third-quarter resets that eventually go to foreclosure will not typically hit the market until March or April of 2009. It appears that foreclosures will be with us for a while yet.

Unless, that is, Mike Aguirre outlaws them. But that's a blog entry for another day (Monday, to be specific).

-- RICH TOSCANO