April 5, 2009

Experts brace for new wave of foreclosures

Desert Sun wire service

A new crushing wave of foreclosures is expected to wash through Riverside County's fast-growing suburbs, a second housing bubble that is about to pop, it was reported today.

"We have unsustainable debt taken out during the housing bubble and it hasn't popped yet,'' Chris Sorenson, a Temecula-based mortgage and Real Estate expert, told one local newspaper.

The corridor between Perris and Rancho California, and the nearby Moreno Valley area, are poised for a second wave of homeowners to walk away from upside-down condos and houses, the experts said.

In February, the last month for which figures are available, one newspaper reported that a record 1,550 homes in southwest Riverside County entered the foreclosure process, up from 1,441 foreclosures in January, according to ForeclosureRadar, a Northern California Real Estate tracking firm.

Since January 20, at least 16,000 homes in southwest Riverside County have fallen into foreclosure, according to several Real Estate tracking companies.

The first wave of foreclosures was triggered by adjusting subprime loans made during the 2004-2007 boom, the North County Times reported, when buyers with less-than-excellent credit scores got hit.

Now, purchasers with good credit records who bought more house than they can afford are finding their "Alt-A'' and "Option-Adjustable Rate Mortgage'' loans are resetting. Although interest rates are low now, homeowners are finding themselves severely upside-down, and faced with the option of buying a new mortgage for a balance that may be 50 percent more than the house is worth.

Rampant unemployment also means many formerly-stellar mortgage holders can no longer qualify to borrow any money, said Bruce Norris, founder of the Norris Group in Riverside. He told the North County Times that the current unemployment rate is almost 12 percent in the Riverside-San Bernardino county area.

How many houses will tumble into foreclosure in the coming months is uncertain but the potential economic disruption is great, said Sorenson, who is being retained by the county to lead a series of classes for owners seeking to avoiding foreclosure.

About 337,000 houses in Riverside County were purchased from 2004 to 2007, before prices began to dive. Almost all of them now are worth less than their owners paid for them.

The coming wave of foreclosures is a "big problem,'' Mason Gaffney, an economics professor at UC Riverside, told the North County Times. "More banks are going to show up with negative equity.''

Gaffney said that will likely mean a shortage of available commercial loans, which is what businesses need if the economy is to revive.

Moreover, the economics professor told the paper that the crush of foreclosures has damaged the traditional Real Estate market as potential buyers focus on finding bargains.

Nationally, a banking and mortgage system already choking on hundreds of thousands of foreclosures soon will be forced to take in more, the North County Times reported.

Figures compiled by the group show that some 700,000 homes across the country stand in what's called a "shadow inventory,'' dwellings that have been taken back by banks but not yet given to an agent.

"When you have an adjustable rate and lose your job ... we will have a lot more foreclosures and people leaving the state to find jobs,'' Norris said.