Mortgage Delinquency Skyrockets
In a troubling sign for the housing market, the number of Southern California borrowers now delinquent on their home loans is the highest in eight years, a real estate data firm said Tuesday.
Mortgage delinquencies climbed to 18,572 during January and February, an increase of 40.9% from the same time last year and the highest volume for a two-month period since 1988 when specialists began tracking such data, according to TRW REDI Property Data Inc. in Anaheim.
Many delinquencies can be traced to recent moves by lenders to relax mortgage standards and extend credit to borrowers with less than stellar credit ratings and little savings cushion, said Nima Nattagh, an analyst with TRW. When these homeowners encounter financial difficulties, such as losing a job or a cutback in hours, they fall behind.
Late payments on mortgages in Orange County were up 60%, while Los Angeles County saw delinquency hikes of 28.6% during the first two months of this year.
The local real estate market has shown signs of strength recently with housing sales up and some prices stabilizing, but the delinquencies are troubling, said Nattagh, who released the numbers Tuesday as part of an economic report from the Institute for Economic and Environmental Studies at Cal State Fullerton.
“There is reason for concern here,” he said. “These delinquent mortgages and the fact that most home values continue to fall mean this market still has a long way to go.”
His warning was bolstered by an earlier report showing that foreclosure notices statewide rose dramatically in the first two months as lending institutions tightened their policies. January’s total of 15,345 foreclosure notices is the highest monthly total ever, according to DataQuick Information Services in La Jolla, a real estate data service. Foreclosure notices are typically issued after a homeowner has missed several monthly payments.
Anil Puri, an economist at Cal State Fullerton, offered a more bullish outlook for the real estate market, saying he expects job growth and other economic improvements to help spur more demand.
Puri predicts that home values will increase throughout much of Southern California this year, with Orange County recording price hikes of as much as 2.5% this year and 7% next year.
“Late payments are not so much of a worry if the economy and jobs continue to grow,” Puri said. “These delinquencies will not necessarily lead to problems in the real estate market. They can be worked out if economic growth is there.”
Last year, the Southern California region gained 98,600 jobs from the previous year, a 1.69% gain and the first positive job growth since 1988, Puri said. This year he predicts a 2.1% job growth for the region and 2.4% for Orange County.
Many of the new mortgage delinquencies are linked to the growing popularity of riskier loans and lending policies, experts said. Savings and loans, as well as banks, have been offering such deals as loans with little or no down payment, and they have been reaching out to borrowers who are more financially strapped or have other credit problems. Critics caution that buyers with little or no stake in their homes and little to lose in their credit reports could walk away from their homes if they run into financial trouble, thus deepening Southern California’s housing slump.
“The potential for more delinquencies and more foreclosures is there, and that could hurt our market,” Nattagh said. “If we have the kind of layoffs we had in 1991 and more mergers, we could see some real problems.”
Typically about 35% of delinquent loans go into foreclosure, according to TRW. A hike in delinquencies could signal more foreclosures and more delinquencies later this year, experts say.
Nattagh said he is concerned that the number of California mortgage borrowers last year who already are delinquent on their payments is 33% higher than the national average.
Moreover, the number of delinquencies on last year’s mortgages is double the number of delinquencies so far for 1994 mortgages and three times the number of delinquent 1993 home loans, according to figures from Mortgage Information Corp. in San Francisco.
This is alarming, analysts say, because typically when people are careful to make mortgage payments when they first obtain home loans. Delinquencies generally rise in later years because of job loss or unforeseen events.
“We’re seeing more delinquencies, and that’s because there’s a lot of misconception as far as the economic news you hear,” said Lynn Nelson, a loan officer at Western Cities Mortgage in Irvine. “People may be employed, but they aren’t getting raises or promotions. People can’t afford what they used to.”
Sanwa Bank is seeing delinquencies from borrowers who have never made late payments before, said Christine Larson, the bank’s head of consumer lending in Los Angeles. Requests for work-outs and short-sales, where the lender accepts less for the property than it is worth, are on the rise, she said.
“We’re trying to find out why these people are delinquent and see what can be worked out,” Larson said.
“There are a lot people who have been out of work for a long time or taken lower-paying jobs who are now maxed out on credit cards, having used all of their savings and now have nowhere else to go,” she said.
Officials at the U.S. Office of Thrift Supervision, which regulates the savings and loan industry, have been assessing the rising tide of mortgage and consumer loan delinquencies.
“Any trend of rising delinquencies warrants close monitoring, particularly in light of rising consumer debt and employment cutbacks,” Jonathan Fiechter, acting director of the OTS, said in a statement a month ago.
Besides the hike in delinquencies, foreclosures in California have soared in the first two months this year, mostly because lending institutions continued to tighten their policies, according to DataQuick.
A total of 13,868 California homeowners received “Notices of Default” in February, the first step in a foreclosure. That was a 41.1% increase--and the second highest on record--from 9,830 notices in February a year ago. January’s record number was 41.4% higher than the previous January.
“Lenders want to get rid of bad loans, and they’re quickening the foreclosure tempo,” said Donald L. Cohn, DataQuick’s chief executive officer. “Many of them figure that the stronger California economy can take it now.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Behind on Payments
The number of mortgage holders in Southern California delinquent on their home loans is the highest in eight years. A look at mortgage delinquencies for the first two months of each year since 1990, in thousands:
1996: 18.6
Note: Includes Los Angeles, Riverside, Orange, San Bernardino and San Diego counties.
Source: TRW REDI Property Data Inc.
Falling Behind
When mortgages become seriously delinquent, lenders file a default notice informing borrowers that they have 90 days to bring the loan up to date or face foreclosure. The number of default notices rose slightly last year in Orange, Los Angeles, Riverside, San Bernardino and San Diego counties. Notices of default in five counties, 1990-1995:
1990: 48,000
1991: 63,000
1992: 78,000
1993: 93,000
1994: 90,000
1995: 90,204
The Formal Foreclosure Process
* Payments missed: Mortgages are officially delinquent when they are one day late. Foreclosure proceedings are initiated after at least three monthly payments are missed, although lenders will try to work out a payment method before resorting to foreclosure.
* Notice filed: To begin foreclosure, the lender files a notice of default with the county recorder’s office and informs borrower that he or she has 90 days to bring loan up to date and pay delinquency fines.
* Trustee’s deed: If borrower misses the deadline, the lender files a trustee’s deed at the county recorder’s office. This places the title to the home with an independent third party, usually a trust company.
* On the block: After public notice of pending sale, home is offered for sale atauction. Homeowner can prevent sale by paying off the entire mortgage.
* Back to the bank: If no one bids on the home, the title reverts back to the lender. Lender sells home through a real estate agent.
Source: TRW REDI Property Data, DataQuick Information Services; Researched by JANICE L. JONES / Los Angeles Times
