Lenders Told Foreclosure Picture Grim

RISMEDIA, Feb. 26, 2007-(MCT)-Mortgage professionals who are struggling with a national spike in residential foreclosure rates were warned yesterday to expect more of the same in 2007.

Unemployment, mortgage fraud and speculative buying are among the factors behind the recent surge in filings, experts said at a conference of the Mortgage Bankers Association.

And this year $1 trillion in adjustable-rate mortgages are due to reset before Dec. 31.

"This is really a wild card," said Rick Sharga of the Irvine firm RealtyTrac. "We don't have a precedent."

Sharga said he was worried by the fact that 13.6% of residential mortgages are in the riskier subprime market.

Mortgage attorney Daniel D. Phelan echoed Sharga's concerns.

"I personally think we are at the beginning of this cycle," he said. "It is going to get worse before it gets better."

Sharga said 130,511 nationwide foreclosure filings in January marked a 19% increase over December and a 25% jump over January 2006. He told lenders to brace themselves for an annual jump of 20% to 25% in 2007.

Sharga is vice president of marketing for RealtyTrac, which provides listings of foreclosed properties. An estimated 2,000 lending professionals attended the association's National Mortgage Servicing Conference & Expo at the Manchester Grand Hyatt downtown. The event will end tomorrow.

Sharga said lenders were concerned with two key loan default issues: the prospect of litigation over the rising number of foreclosures and legislation that could make it harder for them to navigate through the foreclosure process.

With adjustable-loan resets looming, there is mounting pressure for tougher lending regulations. U.S. Rep. Barney Frank, chairman of the House Financial Services Committee, has said enactment of a national lending-standards law to protect consumers from unfair and predatory practices is a priority.

Michael Feiwell, who moderated the foreclosure discussion, noted that the Center for Responsible Lending recently predicted that foreclosures will increase in many markets as housing appreciation slows or reverses. The center has projected that 2.2 million borrowers will lose their homes and up to $164 billion of wealth.

The center's report holds that one out of five subprime mortgages originated during the past two years will end in foreclosure.

Diane Mitchell, an attorney from Salt Lake City who spoke at the conference, said numerous foreclosure filings come from loans that were originated in 2006, when home prices had peaked in many markets. Some borrowers now find that their properties are worth less than they paid for them.

"They got in at the top of the deal and didn't get out quick enough," Mitchell said.

Home mortgage loans in California went into default last quarter at the highest rate in more than eight years, according to the DataQuick Information Systems research firm. Lenders sent notices of default, the first step in the foreclosure process, to 37,273 California homeowners during the fourth quarter. That marked a rise of nearly 37% from the previous quarter and an increase of 145% from the fourth quarter of 2005.

In San Diego County, there were 1,621 foreclosures on residences during 2006, compared with 212 in 2005, DataQuick reported. Because there are about 650,000 homes in the county, DataQuick analyst John Karevoll holds that the current level of default "won't drag down prices."

Karevoll acknowledged that prices have softened since the county reached a record median price of $517,500 in November 2005. The overall median home price in the county was $472,000 in January, down 5.6% from a year earlier and 4.6% less than in December, DataQuick reported.

During the conference, Sharga told lenders that consumers have difficulty finding someone from their mortgage companies to negotiate with when they fall behind in their payments. Mitchell said one way to reduce foreclosure rates is to work more closely with delinquent borrowers.

"Taking the time before you pull the trigger is going to be helpful to you," she said.

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