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Foreclosures barrage Orange County, Calif.(Orange County Register, The (CA) Via Acquire Media NewsEdge) Nov. 12--Despite a return of buyer demand to the housing market, banks seized three times as many Orange County homes from delinquent borrowers in the third quarter than they did the same period a year earlier. Banks foreclosed on 3,997 houses and condos, a total that was up 23 percent from the second quarter, reports MDA DataQuick. Foreclosures hit nearly every corner of the county. All but two of the 83 ZIP codes tracked by DataQuick saw an increase in foreclosures in the third quarter vs. a year ago. The lucky two: Newport Beach's 92662 did not have a single foreclosure in the quarter and Seal Beach's 90740 had two foreclosures, down from four. To combat the trend, which is mirrored nationwide, mortgage giants Fannie Mae and Freddie Mac said Tuesday they would streamline loan modifications. And Citigroup said it would help up to 500,000 borrowers avoid foreclosure, following similar moves by Countrywide and JPMorgan. Also, Gov. Arnold Schwarzenegger has proposed a 90-day moratorium on foreclosures, though that would need approval from the Legislature. Experts interviewed for this story said the programs don't do enough. But absent those programs, they disagree on the long-term trend in foreclosures. Jack Kyser, chief economist of the Los Angeles County Economic Development Corp., which also tracks Orange County, said there is little immediate hope for areas hit hardest by foreclosures, including parts of Santa Ana and Anaheim. "This year and most of 2009 is not going to be pleasant," Kyser said. The large volume of loans going bad is overwhelming other positive trends, such as an increase in housing sales among homes under $500,000, he said. Stats from DataQuick show foreclosures are a big chunk of housing sales, but hundreds more foreclosures are being added each month than are sold. Not all experts agree with Kyser's view. Mark Schniepp, an economist and director of the California Economic Forecast, said he expects foreclosures in Orange County to peak by the end of this year. He points to an April peak in notices of default, which are the first stage of foreclosure. Lenders typically file an NOD after a borrower misses three or more monthly payments. Schniepp said it typically takes about seven months after a peak in NODs for foreclosures to hit a similar wall. Thus he sees November as a potential peak for foreclosures, which should decline next year. However, Schniepp said if the U.S. economy heads into a tailspin, foreclosures would spike as people lose their jobs. The probability of a severe recession has increased over the past month, but it can still be averted, he said. He sees Orange County's housing market recovering next summer. In any case, notices of default, which were flat or trending down since April, fell off a cliff in September, when lenders filed 871 NODs, down 65 percent from August and the lowest in 17 months. Preliminary figures for October show an increase in NODs, but they remain much lower than before a new state law was enacted, according to DataQuick. The new law requires lenders to talk to borrowers 30 days before filing a NOD -- or demonstrate they tried -- and discuss options to avoid foreclosure. The law affects loans made during the final years of the housing boom. Experts interviewed expect the law to delay foreclosures without preventing many of them. Looking at foreclosures by ZIP code, it's clear that Central County areas without beachfront or hillside property are seeing the biggest jump. Economist Kyser said that's because borrowers often bought more home than they could afford in those areas. Four of Santa Ana's ZIP codes had the highest concentration in the county of foreclosures per 1,000 houses and condos. At the top is 92701 with 26 foreclosures per 1,000 homes. Foreclosure density was also highest in parts of Anaheim, Stanton and Garden Grove. Parts of those cities and Santa Ana have older, dense housing stock and lower household incomes, which all contribute to foreclosure, experts say. Two pricier South County ZIPs -- Ladera Ranch's 92694 and San Juan Capistrano's 92675 -- made the top 20. Politicians and some top lenders have recently promised more help to struggling homeowners. But market watchers interviewed for this story remain skeptical of all such plans. Michael LaCour-Little, finance professor and co-director of the Real Estate and Land Use Institute at Cal State Fullerton, said none of the plans he has seen addresses what happens when there is a second mortgage on a property from a different lender. In such cases, which were common during the housing boom, it can be difficult to get the second lienholder to approve a deal, he said. A first lienholder doesn't need approval to modify the first mortgage, but would have to make a more drastic change in terms if the second lienholder doesn't cooperate. LaCour-Little said a moratorium as proposed by Schwarzenegger could just delay foreclosures. And cutting interest rates on loans -- which is key to most if not all plans -- may lower the monthly payment but the borrower can still owe more than the home is worth, he said. "A lot of these programs look good on paper, but when you try to implement them, you run into various problems," LaCour-Little said. Kurt Eggert, a law professor at Chapman University, also said proposals he has reviewed to modify loans lack sufficient teeth. Perhaps the only thing that might work would be a strong federal regulator for loan servicers, as there are regulators of traditional banks, Eggert said. Lenders generally sell most loans they make. That means the company that services a loan often doesn't own it, and the interest of the servicer can differ from that of the owner. Eggert said modifying a loan can be better for investors in mortgages than foreclosure. But sometimes it is easier and less costly for a servicer to foreclose, he said. Someone needs to monitor servicers to ensure they are acting in the best interest of investors, he said. That could be better for everyone. To see more of The Orange County Register, or to subscribe to the newspaper, go to http://www.ocregister.com. Copyright (c) 2008, The Orange County Register, Calif. Distributed by McClatchy-Tribune Information Services. For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. |