CA Sac qts!

http://www.davisenterprise.com/articles/2007/06/29/news/188new2.txt


Davis homeowners have been largely spared from the rising numbers of foreclosures this year. But it's a whole different story on the other side of the Yolo Causeway, in West Sacramento.

There were 13 Davis homes in some phase of foreclosure during the first four months of 2007, and only three had been repossessed by the lender, according to statistics compiled by RealtyTrac, an Irvine company that monitors foreclosure activity.

But between January and April, a notice of default - the first step in the foreclosure process - was issued for 69 West Sacramento homes. Such a notice is issued when a homeowner falls behind on mortgage payments.

Another 33 West Sacramento homes got auction notices, meaning the lender was prepared to take back the home and sell it at auction. And 28 West Sacramento homes were repossessed by the lender.

Those numbers are still rising, week by week, as cooling home prices, rising mortgage interest rates and competition from home builders take their toll.

In other words, there are a lot of stressed-out sellers.

“Right now, we have 273 houses for sale in West Sacramento,” said Lean Hertel, a Realtor and field trainer with Lyon Real Estate's office in West Sacramento. “Of those 273 homes, 102 are being advertised as ‘short sales.' And 34 are already owned by the bank.”

Hertel explained that “a short sale is an abbreviation for a short payoff sale. It means we're selling the home for less money than it takes to pay the loans off. It's something we do to try to stop the bleeding and minimize the damage, for both the borrower and the lender.”

She added that actually going into foreclosure is “a very, very bad scenario.”

What happened?


Two years ago, there were hardly any foreclosures in West Sacramento. What happened? Herb Cross, vice president of Lyon Real Estate and manager of the company's Davis office, says there's a reason foreclosures are so common in West Sacramento, and relatively rare in Davis.

“Foreclosures seem to be predominant in areas of new construction, where builders have encouraged buyers to come in with no down payment, and they have qualified them (for a mortgage) on marginal income,” Cross said. There haven't been many new homes for sale in Davis in the last few years.

But hundreds of home buyers took the plunge and bought new homes in West Sacramento around the time of the housing market's peak in 2005. Those tend to be the homeowners who are having trouble today.

“A lot of those people are now finding that the terms and conditions of their loan are changing,” Cross said. “A lot of them were adjustable rate mortgages,” with interest rates that are resetting to a higher percentage, causing monthly payments to increase.

“And because the interest rates have gone up, these people have a very hard time refinancing,” Cross said. “And because they got 100 percent financing when they purchased the home, when prices were higher, they find they can no longer obtain 100 percent financing to replace their existing loans - because the price of their property has declined.”

Problems elsewhere

Woodland has seen a rise in foreclosures as well. During the first four months of 2007, a notice of default was issued for 38 Woodland homes. Auction notices were issued for another 19 homes and 25 homes were repossessed.

Some areas in Sacramento have been hit much harder. In the 95823 ZIP code in south Sacramento, there were 213 homes that got a notice of default, 98 that got an auction notice and 107 that were repossessed during the first four months of 2007.

Observers see the same trend up and down the state - but it's more pronounced in the Sacramento area, where communities like West Sacramento, Elk Grove and Natomas added thousands of new homes over the past five years, and lenders were making all kinds of new-fangled loans to get buyers into those houses.

Most of the loans that went into foreclosure in California during the first quarter of 2007 originated between April 2005 and May 2006.

“Today's foreclosure activity reflects a peak in the number of home loans made back in the summer of 2005,” said Marshall Prentice, president of DataQuick, a La Jolla-based real estate data firm. “The loans being made back then were riskier because of the subprime activity, as well as higher appreciation rates” as home prices escalated at 10 to 20 percent a year.

Now that the housing market has cooled, lenders are being more careful - which can spell trouble for a homeowner who bought at the peak and now wants to get out, at a time when prices are going down.

“It's easier to make a loan when the security for that loan is going up in value, than when values are flat,” said Prentice of DataQuick.

DataQuick calculated that on California mortgages that are in trouble, homeowners were a median five months behind on their payments when the lender started the default process. The borrowers owned a median $10,784 past due on a median $331,200 mortgage.

In a jam, quickly

Leah Hertel said she's seen plenty of cases like that in West Sacramento. “Usually, by the time we get them, they've already missed a couple of payments.”

She added that for new-ish homeowners who don't have much equity, the prospect of a foreclosure can materialize quickly.

“There are an awful lot of people paying interest-only mortgage payments, and now the interest rate on their loan is going up, and the value of their home is going down. Then, one thing goes wrong” - a job loss, or a divorce - “and suddenly, they're behind. It can happen real fast off a bump in the road,” she explained.

Homeowners who find themselves in this kind of jam, and risk losing the home that had been their dream, typically don't want to talk much about it, Hertel said.

“They're ashamed. Very often, they feel like it's only happening to them,” she said.

“It's hard on the clients, and it's hard on Realtors, too,” Hertel said. “We didn't get into real estate to sell homes for people who don't want to sell their homes.

“The developers are hurting, too,” Hertel said, and some builders are offering $100,000 in upgrades at no charge, if you use their financing. But that can make things even tougher for the individual homeowner trying to move on.

“You're competing with the developer” for the buyer's attention, Hertel said. “And the developer has 15 homes to sell, while you've got one.”

Hertel added that there are relatively few Realtors working in West Sacramento who weathered the previous market downturn, back in the early 1990s. And many banks are less than fully prepared for the foreclosure surge as well, Hertel said.

“The banks have so many of these short-sale contracts to negotiate and process, we're struggling to get them through,” Hertel said.

Sacramento hit hard

Overall, the Sacramento area has the seventh-highest rate of foreclosures in the nation, according to the Inman Blog, which recently compiled a list of markets with high levels of foreclosure activity. The Vallejo-Fairfield area in Solano County was the sixth-busiest in the nation, and four of the top five foreclosure markets in the nation were either in California, or next to the state: Riverside-San Bernardino at No. 5, Las Vegas at No. 4, Modesto at No. 3, Merced at No. 2 and Stockton at No. 1 (with one in 88 households experiencing a foreclosure filing).

Hertel believes the tough times will pass.

“It's a correction,” she said. “In West Sac, we're close to the job centers, like downtown and midtown Sacramento. We're going to do OK here, over time.”

And for buyers, it's a favorable market, Hertel added.

“Two years ago, I was telling buyers, ‘Here are three houses, pick one, and we'll do the best that we can do for you.' Now, it's ‘Which one of these 20 homes do you like, and what would you like to pay for it?' ” Hertel said.

“Interest rates are a little higher than they were 18 months to two years ago, but you can still get a loan at below 7 percent. I bought my first house at 11.9 percent, and that was considered a good deal at the time. There haven't been many times when it's been this good to be a buyer.”