The shake-out is on.
Hundreds of Sacramento-area homeowners who missed their first mortgage payments early last year fueled the region’s most dramatic rise in home foreclosures since the 1990s during the fourth quarter of 2006, a property research firm said Wednesday.
But there were also indications that new instances of financial distress may be diminishing, especially in the region’s most populated counties.
La Jolla-based DataQuick Information Systems said 865 capital-area homeowners surrendered their houses to the bank in October, November and December — nearly double the region’s 450 third-quarter foreclosures.
While foreclosure activity climbed sharply, statistics also showed the rate of growth in notices of default — the first sign that homeowners are having trouble making their mortgage payments — has slowed.
The region’s 16 percent jump in default notices in the fourth quarter compared to a 25 percent jump the previous quarter — and a 37 percent rise statewide.
DataQuick analyst John Karevoll said most homeowners who find themselves in trouble do so within 18 months of purchasing the home. The slowing rate of growth in default notices reflects an increasing number of loans moving beyond that time frame, Karevoll said.
He said the region “may have seen most of the surge it’s going to have in (notices of) default activity.”
But trouble at home is still clearly on the rise. The 865 fourth-quarter foreclosures compare to 63 the same time last year in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties. Analysts said Wednesday the sharp rise reflects both last year’s historic lows and the sheer number of owners who overextended themselves to buy houses during the recent housing boom.
“What’s the old saying? ‘The chickens are coming home to roost,’ ” said John Arvanitis, president of Citrus Heights-based Sunrise Vista Mortgage Corp.
Arvanitis called the foreclosure numbers “inevitable with the type of financing that most consumers were forced to accept to get into a house before they could no longer afford it.” A majority of boom-era homebuyers used adjustable-rate loans that offer initial low payments for a specified number of years and then adjust to new interest rates and higher monthly payments.
Statewide, DataQuick reported 6,078 fourth-quarter foreclosures compared to 3,435 in the third quarter. It also reported 37,273 notices of default in October, November and December, the highest quarterly total since 1998.
More ominous, the number of people who receive such notices and then lose their houses to banks reached 32 percent in the fourth quarter. That’s up from 8 percent the same time in 2005.
“People are making life choices,” said Scott Thompson, owner of Carmichael-based Short Sale Resolution Services. The firm helps distressed homeowners negotiate sales where lenders accept less than they’re owed to avoid the more expensive foreclosure process.
“I think they’re less and less willing to make extraordinary sacrifices to remain current on their home because they can’t see any hope going forward.”
Many of the homeowners are now experiencing financial stress over mortgage payments they took on as the housing boom reached its zenith in 2005. As sales prices have fallen, many owe more than their houses are worth and have few refinancing options to escape growing mortgage burdens. That’s a recipe for more home losses in the short term.
Sacramento County reported 657 foreclosures during the last three months of 2006, the most since 703 during the second quarter of 1997. Placer County’s 82 fourth-quarter foreclosures compared to a historic high of 90 in the second quarter of 1996. Both peaks marked the end of a housing bust in the region triggered by recession, job losses and military base closings.
By contrast, today’s rising foreclosure numbers come amid a strong economy and job growth, and relatively stable and historically low interest rates.
DataQuick’s Karevoll said Wednesday the foreclosure numbers are still too low to become a drag on property values. But he said foreclosures are likely to continue rising in the short term.
Wednesday’s release of the foreclosure and notice of default numbers came as Walnut Creek-based PMI Mortgage Insurance Co. ranked the Sacramento region as the nation’s leading market for risk of price declines during the next two years. The company, which provides mortgage insurance to buyers making less than 20 percent down payments, said sales prices have a 60.4 percent chance of declining after more than doubling between 2001 and 2006.