The latest data from the County Records Service shows 925 notices of defaults were sent out to holders of mortgages in San Diego last month. Borrowers receive such a notice when they miss at least one loan payment.
That’s an increase of about 20 percent from last month, when the number of defaults was 756, and a jump of 250 percent from August 2005, when only 370 of the notices were sent out.
The number of trustee sales – when the lender who holds the first loan on the property auctions it for at least the amount of the outstanding loan – in August was 368. That’s more than triple the number of such sales last August, which was 99.
And another set of numbers worth looking at shows how many properties are REOs – real-estate owned. If a property is foreclosed on, and the lender is not able to sell it in a trustee sale, that property is then owned by the original lender – and known as an REO. There were 108 of those in August, 20 fewer than in July, but substantially more than the 3 REOs in August 2005.
Phyllis Ingraham, president of County Records Service, said the majority of this foreclosure activity, including NODs, is for mortgages originating in 2004 or 2005.
Ingraham blames the rise in interest rates and the significant number of mortgages in the county that are either interest-only or negatively amortized. Many of the holders of these types of mortgages are counting on rising home values to make their loan work in the long term. Without increased homes values – and the beefed-up equity available because of them – these borrowers can be stranded years down the road with rapidly increasing mortgage payments and no way to pay for them.
“When house values go down and they owe more on the property than the house is worth, then they can’t make it,” she said.
In the first five months of this year, 67.8 percent of the purchased and refinanced mortgages in San Diego were either interest-only or negative-amortization loans, according to First American Loan Performance.
Last year, 68.8 percent of local mortgages were exotic loans. In 2004, these types of loans made up 57.7 percent of the pie. Only a quarter of mortgages were interest-only or negative-amortization in 2003, and only 11 percent were exotic in 2002.
So if those 2004 and 2005 mortgages are starting to default or foreclose, the big question looming is what the effect will be of the 2006 loans, compounded by the fact that home prices dipped negative for the first time year-on-year a couple of months ago.