California hasn't had a lot of foreclosures in the past. But in the last quarter of 2006, 37,273 Default Notices were sent to California homeowners, which is a 36.9% increase from the quarter before.
High appreciation and strong sales in many places have made it hard to see any problems that might be coming. According to the Center for Responsible Lending (CRL), 2.2 million American households will lose their homes, which will cost $164 billion in foreclosures. This is because the housing market is slowing down, interest rates are going up, there are new loans for people with bad credit, and prices are too high for many buyers.
A notice of default is the first step toward foreclosure, but most homeowners get out of this terrible situation by:
- Refinancing: using the property's equity to catch up on mortgage payments OR
- Selling the property: paying off the loan with the property's equity
Still, earlier in the year, 32% of Homeowners who were in default lost their homes to foreclosure. A year ago, that number was only 8%. This fits with a study done by the Center for Responsible Lending, which says that home prices will fall over the next five years, causing exit strategies to close.
The real estate boom is ending. There is a clear disconnect between high real estate prices and low incomes. More and more Californians are struggling to keep their homes.
Most of the loans that haven't been paid back were made between January 2005 and February 2006. In the middle, the loan had been around for fifteen months.
When the Lender started the Default process, homeowners were behind on their main mortgage payments by an average of five months.
On lines of credit, homeowners were usually six months behind.
On a loan-by-loan basis, mortgages are least likely to go into default in the Bay Area but more likely to do so in the Central Valley and Inland Empire areas of California.
California has 7.87 million properties, and when one goes into foreclosure, the value of all the other properties in the area goes down as well. By making the neighbourhood less stable, foreclosures hurt everyone.
Homeowners work hard to give their families economic security and ownership benefits. What changes can be made in this great country of ours to make owning a home fair, affordable, and sustainable?
