Tuesday, April 17, 2007 | Mortgage lenders repossessed a record number of San Diego County homes in March, bolstering fears that the region’s housing slump is worsening.

The 433 homes lost in foreclosure represented a more-than six-fold increase over the previous March, when there were only 66 such repossessions, according to La Jolla-based DataQuick Information Systems. The previous record was 389 homes in October 1996.

The month’s foreclosure rate mirrored the statistics for the entire first quarter of the year: A record 1,183 homes were lost in foreclosure in the first three months of 2007, edging past the previous peak of 1,059 in the third quarter of 1996, when the region was emerging from a recession.

As the group of homeowners in foreclosure swells, so certainly does the group of those stretching to make their payments. The dramatic foreclosure rate could be the tip of an iceberg, but it hasn’t yet had a dramatic, wide-scale effect on housing prices in the county, analysts said.

“It’s terrible being in this situation, and you can’t discount that,” said John Karevoll, an analyst with DataQuick. “But we’re asking, ‘How is this impacting the real estate market? How much of a discount are these foreclosure properties selling for?’ So far, the answer is, ‘Not much.’”

Compared to cities in Ohio and Michigan, where monumental job losses have exacerbated the foreclosure rate and pushed it into the tens of thousands, San Diego’s numbers pale, Karevoll said. San Diego’s long, dramatic period of housing appreciation meant its foreclosure rate plummeted near the start of the decade. But these new numbers are clear: That is over.

Local real estate analyst Gary London said the foreclosure rate could soar higher if the housing market continues its slump. The 433 homes lost in March represent a fraction of the tens of thousands of transactions conducted in the county each month, London said. The more telling trend is cloaked, he said — the thousands of county homeowners who are just barely making their payments, or borrowing from elsewhere to keep up with their mortgages.

“If there’s not a housing turnaround later on this year, we could start seeing real numbers that are really meaningful, representing real distress,” he said. “If the housing market doesn’t improve in the foreseeable future, the situation could get substantially more dire.”

Already in distress are thousands of homeowners who borrowed enthusiastically when home values were skyrocketing. Many who took out loans with low introductory rates saw a safety net in the promise of refinancing or selling if money ran short for monthly payments. But as prices slip, that safety net vanishes, and many homeowners are now stuck with soaring monthly payments for mortgages whose terms they never really understood.

The popularity of “exotic” loans with temporary low rates that ramp up to higher monthly payments continued to grow in 2005 and 2006. Those loans have proven riskier than traditional mortgages because homebuyers used them to reach past what they could’ve otherwise afforded. Loans that fail are most likely to default within their first year-and-a-half, and many of the foreclosures being reported now are linked to loans made in the summer of 2005, according to DataQuick.

The number of homeowners in the beginning stage of foreclosure skyrocketed in March and in the first quarter, the statistics showed. Notices of default mailed last month numbered 1,395, more than twice the 591 such notices sent in March 2006. The most NODs sent in any month: nearly 1,800 in January 1996.

And the 3,931 notices of default sent to San Diego County homeowners in the first three months of 2007 marked an increase of 156 percent from the same time last year. It was the highest quarterly figure in 11 years. The record for notices sent was 5,139 in first quarter 1996.

Most homeowners who receive a notice of default find a way to sell their home or refinance to make their mortgage current, Karevoll said. But about 40 percent of the state’s homeowners who received a default notice in 2006 lost their homes to foreclosure in the first three months of this year. That ratio measured just 9 percent a year ago, DataQuick reported.

In 1996, the last significant record-setting foreclosure period, San Diego’s greater economy suffered from huge job losses in its aerospace and manufacturing industries. The region diversified its economy after the recession of the mid-1990s, and is counting on its current job makeup to help to guard against a similar outcome.

Even job losses in real estate-related industries, as the market cools and such companies trim their staffs, haven’t proven dramatic enough to launch the region into a recession, Karevoll said.

The deluge of bad news in the nation’s mortgage market — especially among lenders for poor-credit, or subprime, consumers — has led to more stringent standards for qualifying for a loan in the first place and talk of government bailouts.

Nationwide, subprime loans are eight to 10 times as likely to default as prime loans, said Frank Nothaft, the chief economist for government-sponsored mortgage giant Freddie Mac.

“Subprime loans are performing far, far worse than conventional loans,” he said. “Clearly, people who are having substantial difficulty are because of weak underwriting, the market turning, and [adjustable-rate mortgage] payments ballooning.”

Those tighter regulations may not prove a panacea for a hurting market. Some homeowners trying to refinance out of risky loans may not qualify under the new standards and people who might have been first-time homebuyers in previous years could no longer qualify for loans. Government or industry control could prolong the market’s natural correction, London said.

“This is just the tip of the iceberg if the distress continues, or if we enter an over-zealous regulatory environment,” London said. “There’s probably thousands of San Diegans that are feeling a little stress.”

Karevoll said it’s difficult to predict the end of this slump. The housing market isn’t untouched by growth or contraction in the job market. Government or industry regulations, mortgage interest rates, and other factors could drive the housing market further downward. And even a strong local economy would prove the underdog if the national markets slump.

“There are those who think the national economy will have a recession,” Karevoll said. “Then things could get dicey. The housing market doesn’t exist unto itself.”

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