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Four times as many properties were foreclosed on throughout San Diego County last month compared to the same month last year, new data from the firm County Records Service show.

Last month, there were 427 foreclosures in the county. In July 2005, there were 99. Foreclosures result from borrowers not being able to make their monthly payments on their mortgage, or some other failure to meet the mortgage’s terms. When that occurs, the borrowers’ homes repossessed by lenders.

There’s no disputing these numbers: foreclosures (and defaults, which also doubled year-on-year in July) have steeply risen in recent months. Broken down, the monthly total of default notices sent to borrowers who had failed to make at least one mortgage payment averaged to 38 notices per day in July. The number of foreclosed properties in July averaged to 15 per day.

Where the debate comes is in what these numbers mean. Will Carless outlined the debate in a story called “Foreclosures on the rise.”

Here’s what he discovered:

Gary Painter, director of research at the University of Southern California’s Lusk Center for Real Estate, said a reasonable number of foreclosures plays into the “soft landing” theory for the housing market. Gradually, some people will be knocked out of the game, he said, but that’s only to be expected as the market softens and as some people cannot keep up their payments.

The recent rise in foreclosure rates could simply be a return to “normal” rates, Painter said. Indeed, Phyllis Ingram, president of County Records Service, said rates are still way below where they were during the last major slowdown in real estate.

“When we went into the recession, the figures zoomed up, they were much higher than they are now,” Ingram said.

I just talked to Ingram about the most recent numbers, and she said the difference between the trend now and the trend in that last “major slowdown” in the early 1990s is the number of loans that are either interest-only or negatively amortized. In an interest-only loan, the borrower pays only the interest on their loan for a fixed period, usually five years. In negative-amortization loans, the borrower pays not even the full amount of interest charged on the loan, meaning the debt grows even while it’s in “repayment”.

Ingram said the high numbers of these loans, combined with rising interest rates, are what worry her.

“There’s higher interest now on loans that were interest-only or negatively amortized,” she said. “And the prices have dropped so that people cannot refinance.”

Again, from Will’s story:

There’s little question that if the number of foreclosures continues to rise exponentially there will be an impact on local housing prices, the question is, then, how much the rates will rise and therefore how much prices will be impacted.

You can be sure experts will continue to watch these trends in the coming months to begin to answer those questions.

KELLY BENNETT

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