Monday, Feb. 11, 2008 | In the year since national spotlights became trained on problems affiliated with subprime mortgages, some pundits and analysts have made “subprime” synonymous with the entire crisis in the economy, the housing market and a lot of other, sometimes unrelated, issues.
But growth in late payments and foreclosures among other loans in San Diego County speaks to a problem that is far from contained to subprime, analysts caution.
Confirming a well-known trend, new data show that late payments and delinquencies on subprime loans in San Diego County soared between November 2006 and November 2007, according to FirstAmerican Loan Performance.
But in that same time, signs of distress also increased among the other 87 percent of outstanding loans in the county, those prime loans restricted to borrowers with very good credit.
“That’s the part we are all watching,” said Mark Carrington, director of analytical sales and support at First American LoanPerformance. “The subprime, that’s to be expected. What we’re watching is the prime delinquencies beginning to increase.”
While the mess in subprime has been blamed for the nation’s real estate woes, from soaring foreclosures to plunging prices, analysts say the trouble’s not contained there. They’ve fixed their attention on the prime side, on those loans often considered to be better cushioned from the impact of the slowing housing market and slumping economy because borrowers of those loans had better credit or more equity to absorb falling home prices.
But the share of those prime mortgages in both the 60-days-late and the foreclosure scenarios grew between November 2006 and November 2007. While just 0.44 percent of the prime loans outstanding in the county had late payments for at least 60 days in November 2006, the share of prime loans in that situation had tripled to 1.54 percent by November 2007.
Just 0.14 percent of prime loans were in foreclosure or bank-owned in November 2006. But by November 2007, that share had jumped to 0.57 percent.
To be sure, subprime loans have been the most troublesome in San Diego County and across the country. As of November 2007, they constituted 13 percent of all of the outstanding mortgages here. And the borrowers of those loans were significantly more likely than prime borrowers to be at least 60 days behind on their mortgage payments, or to have entered foreclosure.
In November, payments were at least 60 days late on 27 percent of the subprime loans in the county. The share of loans in that position had grown from 10 percent in November 2006. An additional 12 percent were in some stage of foreclosure or were bank-owned, compared to 4 percent of the county’s subprime loans in November 2006.
Until recently, subprime loans were typically made to borrowers with higher-risk characteristics like poor credit scores, small or nonexistent down payments, unverified incomes or assets or a large amount of debt relative to their income — or a combination of those traits. Prime loans were reserved for very good or perfect credit borrowers who, usually, needed to borrow less than about $417,000 to buy their home.
|Editor’s note: The original version of this graph transposed the categories of prime and subprime. We regret the error.|
As mortgage analysts watch those trends on the national level, local lawmakers — already overwhelmed with the task of combating the impact of foreclosure from the subprime side — say the problem needs even more attention.
But Jim Bliesner, who fights foreclosure as the chairman of the City-County Reinvestment Task Force, said he doesn’t quibble over a loan’s prime or subprime status.
“I think that a foreclosure’s a foreclosure’s a foreclosure,” he said. “We’re concerned about the impact of a foreclosure and where it’s happening and its impact to the community.”
To the extent that growing late payments and delinquencies on the prime side represent a greater problem than many in the region have acknowledged, the societal bent toward over-leveraging and burdensome debt aren’t restricted to any certain socioeconomic status, Bliesner said.
“It’s about people’s over-extended financial situations, the heavy burden that comes with delinquent debt,” he said. “And its escalation with those penalties that end up on people’s doorsteps. There’s a whole lot of trip wires out there in the economic landscape that when people are stable and growing, we don’t see.”
Bliesner’s co-chairman, San Diego Councilman Tony Young, called for increased attention on picking up the pieces when a loan forecloses. The task force picked up mention in the Wall Street Journal last week for its initial investigation of land bank plan that would see an agency purchase foreclosed homes to keep them from falling into blight.
“Yes, this is an international, national, state issue, but there is and there should be responses at the local level,” Young said. “Not only what are we doing now but how are we going to pick up from this mess?”
Joseph Galascione is president of ERA Metro Realty, which published a report last month observing a growth in the number of loans outstanding in North San Diego County that the firm would consider a high risk for foreclosure. That high risk means the loan has less than 20 percent equity and a borrower’s payment is set to increase by at least $500 in the next few months.
“Interestingly enough, in this last report for the first time, the number of resets or potential foreclosures in North County outnumbered the South Bay, Galascione said. “(So far) South Bay has just been riddled with foreclosures and North County has been able to survive.”
Young said an increased focus is needed on the all regions of the county — not just the ones already saddled with vacant foreclosed homes.
“What’s happening now is like a tsunami in slow motion,” he said. “What are our plans as a county and as a city to kind of rebound from that?”