Thursday, Oct. 11, 2007 | Banks seized 14 times as many San Diego County homes last month as they did in September of last year, leaving home values vulnerable, lenders flooded with properties and government officials scurrying to help.
The number of homes to make it all the way through the foreclosure process to become bank-owned properties in San Diego County soared to 866 homes, a 43 percent increase from August’s 602, according to numbers released Wednesday by RealtyTrac, a nationwide foreclosure tracker. And last month’s number shows a 14-fold jump compared to September 2006, when just 62 homes were repossessed, or became real-estate-owned (REOs).
Market watchers say the ever-growing foreclosure inventory will drive down prices among the 23,000 homes on the resale market countywide. Compared to many home sellers, lenders are dispassionate. They hire brokers or send properties to formal auctions with instructions to lower prices quickly to get the properties off their books. And the more properties lenders absorb, the more willing they are to lop off tens of thousands of dollars from their asking prices.
According to RealtyTrac, total foreclosure filings in San Diego County dipped by 2 percent between August and September but rose year-over-year by 206 percent.
Ramsey Su is a retired REO broker who worked in the local market during the 1980s and 1990s who tracks the market extensively. Having attended both of the major home auctions in San Diego this year held by Orange County-based Real Estate Disposition Corporation, Su estimated those auctioned homes have sold for about 30 percent less than the price the company listed as the homes’ previous values. At least 85 properties are up for auction at the next one, to be held Oct. 27.
During Su’s career, an intake of 800-some REOs in a month was unheard of.
“I don’t even remember months then that we even had 200,” he said. “Two hundred would be ‘Wow, what a terrible month.’ I watch what is coming in the front door. If [banks] are in the process of acquiring 1,000 a month, the magnitude is so much.”
No local real estate data firms could provide data Wednesday for what proportion of current sales were REOs, homes sold after being repossessed by banks. But Su estimated that REOs comprise a little more than 30 percent of the county’s total sales, while short sales comprise another 10 percent or so.
For August, based on DataQuick Information System’s tally of 2,457 sales of resale houses and condos in the county, those estimates would translate to about 740 REOs sold in August and about 245 short sales.
Also Wednesday, the state’s top real estate trade group released a gloomy forecast for California housing markets in 2008. The California Association of Realtors projected 2008 will prove the slowest year for home sales since 1985, and that prices will decline 4 percent, the first decline since 1996.
In a statement, the group’s president, Colleen Badagliacco, warned homeowners to quell their curiosity.
“Now is not the time for homeowners to ‘test the waters’ — only serious sellers should put their homes on the market in what will continue to be a challenging sales environment,” she said.
Where once an ocean of options existed for homeowners who needed to refinance or somehow modify their mortgage payments to stay in their homes once they received a Notice of Default, such options have now shrunk to a puddle as the national credit crunch left major lenders tightening their standards for borrowers.
During the boom, many homeowners borrowed high-cost mortgages that didn’t require income verification with the plan to refinance after their homes appreciated. But home values have long stopped appreciating through much of the county. Now, the depreciating homes values, compounded by borrowing requirements that leave them out of the picture, leave scores of homeowners in the county with no way out but foreclosure.
As it has grown, the phenomenon has caught the attention of local and national law- and policy-makers, including San Diego’s City Council, which heard a presentation on the topic Tuesday.
Councilman Tony Young co-chairs the Reinvestment Task Force, the group that made the presentation Tuesday. Young said the whole city, not just his district, feels the foreclosure heat.
“We see how neighborhood by neighborhood, street by street, the effects of foreclosure on our constituents,” he said. “I went to two churches last Sunday, and there’s a fear there — at both churches combined … people came to me and said they are in that situation themselves.”
“One was an older woman,” he continued. “I suspect she probably paid her house off already, but someone came along and put her in a refinance. … Now she could lose her house.”
The City Council requested reports from various city and county agencies about what each could do to alleviate the loss of homes.
Their efforts correspond to discussions taking place on the national level.
One federal measure passed last week leaves market watchers divided. Some say the measure is welcome for its help for distressed homeowners. But others say it eliminates a key repercussion from defaulting on a mortgage. The U.S. House of Representatives passed H.R. 3648, a bill that will disallow the IRS from sending a tax bill to homeowners who negotiated short sales with their lenders.
A short sale happens when homeowners in default on their mortgage find a buyer who’s willing to purchase their home for less than they owe to the lender. If the lender approves that amount, the IRS has previously sent a tax bill to those original homeowners for the balance between the new sale price and what they owed on the mortgage.
The new measure eliminates that tax burden, which Young construed as a good thing for the thousands of San Diegans in trouble on their loans who might be able to use the short sale as a way out.
“It’s really heartbreaking,” Young said. “I see some of the mean folks saying, ‘Just live with it, that’s life. You made a bad decision.’ But I think it’s more than that.”
But Su said the new measure could encourage others to give up, to default on their loans.
“If I’m that homeowner, saying, ‘I refinanced and I bought my jet ski, I bought season tickets to the Chargers,’ what is my neighbor going to do, who’s working two jobs to make that same payment and he gets screwed? … He’s going to say, ‘I better default, too.’