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Special Reports - Real Estate

Thursday, Apr. 23, 2009

More foreclosures coming to the Modesto area

Default notices up by as much as 66% in valley

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The lull in foreclosures is about to end.

While it hardly seemed that way, the foreclosure rate was relatively low the past six months in Stanislaus, Merced and San Joaquin counties.

But things are going to get a whole lot worse.

MDA DataQuick released statistics Wednesday showing that notices of default — the first step in the foreclosure process — spiked dramatically in January, February and March compared with the last three months of 2008.

Mortgage defaults rose nearly 58 percent in Stanislaus, 54 percent in Merced and 66 percent in San Joaquin.

There's typically a six-month lag between the filing of default notices and repossession by lenders. So the region could be slammed with foreclosures starting midsummer.

During the past two years, 36,313 homes in the three counties have been lost to foreclosure, according to DataQuick. In the past six months, an additional 14,420 homeowners have defaulted on their mortgages and been formally warned they are in jeopardy of having their property repossessed.

The valley isn't alone in this mess.

Throughout California, lenders filed a record number of mortgage default notices during the first three months of this year. There were 135,431 default notices during the quarter, up 80 percent from the last three months of 2008.

"The nastiest batch of California home loans appears to have been made in mid- to late-2006, and the foreclosure process is working its way through those," said John Walsh, DataQuick president. "Back then, different risk factors were getting piled on top of each other. Adjustable-rate mortgages can be good loans. So can low down-payment loans,

interest-only loans, stated-income loans, et cetera. But if you combine these elements into one loan, it's toxic."

Among those who got loans in August through November 2006, more than 9 percent have defaulted on their mortgages. The default rate for loans made in 2004, by comparison, has been less than 1 percent.

Lenders don't start the foreclosure process without reason. During the first three months of this year, homeowners receiving notices of default were behind on their mortgage payments by a median $12,926. The median size loan in default was $346,400.

Mortgages were least likely to go into default in Marin, San Francisco and San Mateo counties. The highest foreclosure rates were in in Riverside, Merced and San Joaquin counties.

While there was a decline in foreclosures in the fall and winter, DataQuick said it primarily was because of temporary policy changes and a moratorium placed on lenders. Those changes required lenders to take more steps before foreclosing.

They've taken those steps; now, they're ready to start foreclosing again.

Bee staff writer J.N. Sbranti can be reached at jnsbranti@modbee.com or 578-2196.