When I’m talking to economists and real estate folks about what’s in store for the local housing market, this Credit Suisse chart comes up a few times a week. The chart shows how the mortgages that have reset already are predominantly subprime, but many more resets loom for borrowers of Alt-A loans. Alt-A refers to a loan with at least one risky element given to someone with a better credit score than subprime.

“Reset” refers to the point at which a mortgage switches from its introductory period of teaser interest rates or payments to a higher payment. A lot of borrowers obtained these loans hoping the market would appreciate enough that they could refinance the loan into a more traditional loan before the payment reset. But in a declining market, that option has largely been taken off the table, especially if the buyer’s down payment was less than 20 percent. Without that ability to refinance, borrowers get stuck with skyrocketing payments and might try to sell at a loss or just let the house go into foreclosure.

So by looking at the resets still to come, we can start to guess what’s next for the housing market. In a bit of a surprising move for the usually sunny California Association of Realtors, the group parsed the coming resets by county in a report released this week.

More than half of the total adjustable-rate mortgages in San Diego County had yet to reset as of the end of 2007, according to First American CoreLogic data included in the CAR report.

There are 21,500 subprime adjustable-rate mortgages in San Diego County, counting for about 3 percent of the county’s housing stock. Of those, 39 percent had already reset in San Diego County by the end of last year. Thirty-five percent were scheduled to reset in 2008, 17 percent in 2009 and 9 percent after that.

But on the Alt-A side, the county had 39,700 such loans, constituting 6.3 percent of the county’s total housing units. Forty-six percent of those had already reset by the end of 2007. Another 5 percent were scheduled to reset this year, and another 5 percent in 2009. But in 2010 and beyond, 44 percent more Alt-A loans will reset.

Based on those numbers, real estate broker Jim Klinge predicts this morning that we could be looking at another 25,000 foreclosures in the county in the coming years, which about doubles the 24,154 foreclosures the county’s seen in the past 21 months. Here’s Klinge’s analysis:

We still have 34,553 loans to reset in 2008 and beyond, which is 56.5% of the total of subprime and Alt-A mortgages in San Diego County.

We had 26,647 loans adjust prior to 2008, and we’ll end up somewhere around 20,000 foreclosures in 2008 in San Diego County, about 75% of those that have reset.

Unless the loan modifications and other gimmicks work, it looks like we’re heading for approximately 25,915 MORE foreclosures.

(using the same guesstimate of 75% x 34,553 loans resetting in 2008 and beyond).

Check out Rich Toscano’s debunking of the idea that our problems are over once subprime resets subside:

The ongoing (and, I can’t help but add, inevitable) foreclosure crisis is not about credit scores. It’s about borrowers of all economic stripes who took out high-risk loans with the expectation that continued home price appreciation would pay their bills for them. To dismiss it as a subprime problem is to ignore what caused the crisis in the first place.


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