Record home losses in California

FOR THE RECORD:
Home foreclosures: An article in Section A on Wednesday on home foreclosures said the number of homes repossessed in California in the three months ended June 30 increased 33.5% from the same period last year. The increase was from the first quarter of 2008. The article also said that DataQuick Information Systems began tracking foreclosure data in 1992. The firm's tracking began in 1988. —

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Rep. Loretta Sanchez (D-Garden Grove) said the new California foreclosure numbers were "alarming," and point to the need for rapid approval of the legislation.

Foreclosures statewide jumped 33.5% in the three months ended June 30, compared with the same period last year, DataQuick Information Systems reported. The 63,061 homes taken back by lenders were the most for a three-month period since the firm began tracking this data in 1992.

The latest figures contained one surprise: defaults -- the first step toward foreclosure -- rose by just 6.6% in the second quarter, down from a 39% spike the previous period.

DataQuick President John Walsh said the reason was not immediately clear. Foreclosures may be "nearing a plateau," he said, but it could also mean that lenders are "swamped and can't handle processing any paperwork."

Sean O'Toole, founder of the data tracking firm ForeclosureRadar, thinks the leveling off may mean that defaults on subprime mortgages -- loans made to poorly qualified buyers -- are nearing a peak.

But the housing market still could face a new wave of defaults from other loans that will adjust to higher rates, including pay-option adjustable-rate mortgages and so-called Alt-A loans, which are a step between subprime and high-quality prime loans.

"Most resets on those products are still in front of us," O'Toole said.

UCLA economist Edward Leamer agreed that the default rate on Alt-A loans, a specialty of failed Pasadena lender IndyMac Bank, could be pivotal.

"The big uncertainty is what happens when all those Alt-A's reset," he said. Those mortgages were also more prevalent in higher-priced housing markets, he noted, where there have been fewer foreclosures.

O'Toole said that even if foreclosures do level off, it probably will take years for the market to absorb all the homes that are being resold by lenders at steep discounts.

So far, most foreclosures have been in outlying areas that attracted first-time home buyers. But repossessions are on the rise in more established neighborhoods, including affluent communities.

Malibu and Beverly Hills had one foreclosure each in the second quarter of 2007. This year, Malibu had eight and Beverly Hills had seven, according to DataQuick.

There were 26 foreclosures in Newport Beach and Newport Coast combined for the second quarter this year, up from 10 a year ago.

Although these numbers are relatively small, Leamer said, the slump hitting the broader market will drag down values just about everywhere, in part because depressed prices discourage homeowners from selling and trading up.

"Prices are not going to recover soon, that's for sure," Leamer said.

In Washington, meanwhile, lawmakers put the finishing touches on housing relief legislation that would give the Treasury Department the go-ahead to increase its line of credit to Freddie Mac and Fannie Mae and buy stock in the companies, if necessary.