While foreclosures climbed 2% nationally, California saw a 14% drop. But California's high unemployment rate and resetting loans mean the fall in foreclosure activity could be brief.
Fewer Californians grappled with foreclosure
last year, bucking a national trend and giving homeowners fresh hope that the
state's housing market could be on the mend.
The 14% drop in foreclosure activity contrasted
with a 2% rise nationally, according to data tracking firm RealtyTrac. Analysts
noted that California's
housing market was among the first to falter and may now be among the first to
recover. Home prices here hit bottom in April 2009, and have gradually risen
"There are a lot of risks out there, but I
think the trend is improvement â€” not dramatic, but substantial," said
Kenneth Rosen, a professor atÂ UC Berkeley's
Haas School of Business.
But Rosen and other observers caution that the
state's high unemployment rate of 12.4% and weak demand for housing are still a
Another potential trouble spot: A large number of
adjustable-rate mortgages are scheduled to reset to higher rates in coming
months, said Rick Sharga, senior vice president with RealtyTrac. That could
lead to another uptick in foreclosures if the borrowers cannot make the higher
payments, or decide that they are throwing good money after bad.
"You have the three-headed monster of high
unemployment, a weak economy and problem loans," said Sharga, who thinks
foreclosures in 2011 could surpass last year, and possibly the peak year of
The crisis certainly isn't over for Guy
Vernikovsky. He is facing foreclosure on his home in Torrance after trying multiple times to
modify his loans, asking for lower interest rates from his bank, he said.
Vernikovsky, 32, said he lost his job installing
energy-efficient light fixtures in 2008 but tried his best to keep up on his
two mortgages, even burying himself deeply in credit card debt. He said he
moved home with his parents in Northern California,
found a new job and would now be able to make his mortgage payments if he could
get reduced interest rates on his two loans.
"I applied two or three different times and
they would not modify my loans," Vernikovsky said. "I wasn't looking
to turn a fast buck on a real estate market that was hot at the time. I was
really looking to own that home for the next 20 to 30 years."
More than half a million California homes were
involved in some stage of foreclosure last year, including notices of default
as well as bank repossessions, according to numbers to be released by RealtyTrac
on Thursday. Among those filings, 173,175 represented homes retaken by lenders,
a 13% drop from a year ago.
Nationwide, a record 2.9 million homes were in
foreclosure, up 2% from 2009.
Sharga said the national numbers would have been
much higher were it not for several major banks' slowing foreclosures
dramatically late last year amid scrutiny from lawmakers, regulators and law
enforcement officials over their foreclosure practices, including allegations
that paperwork was not properly processed.
"There were delays over the last two months,
or 2 1/2 months, and that just skewed the numbers wildly," he said.
Sharga estimated that an additional
quarter-million filings in the U.S.
probably would have been logged if it were not for the delays brought about by
the foreclosure fracas.
Several major banks, includingÂ Bank of America, Ally
Financial Inc. andÂ JPMorganÂ Chase
& Co., suspended foreclosures late last year in states where a court order
is required to take back a home. Bank of America went as far as to declare a
national freeze as it reviewed its process, though it lifted that policy in
Analysts credited the Bank of America action for
depressing foreclosure sales across the Golden State
in November and a subsequent sharp increase last month.
How quickly banks will return to foreclosing in
the new year remains the wild card in the equation.
Homeowners who have lost their properties to
foreclosure are making gains challenging the foreclosure system through the
legal process. Last week, the highest court in Massachusetts agreed with a lower-court
ruling that two home foreclosures were invalid, and found that lendersÂ Wells FargoBank and US
Bank had failed to prove they owned the mortgages.
The case was significant because it was the first
time that a state supreme court had ruled on the issue of chain of title. A
spokeswoman for California Atty. Gen. Kamala D. Harris said such lawsuits might
be brought in the Golden
State, where foreclosures
remain largely outside the court system.
"We have now officially begun the litigation
phase of the foreclosure crisis," Sean O'Toole, chief executive of data
provider ForeclosureRadar, recently wrote on his blog. "Attorneys will
likely be the biggest winners in the foreclosure business for 2011."
About 4% of all homes in California were at some stage of foreclosure
last year, RealtyTrac said. That acts as a drag on the housing market overall,
as the availability of low-priced bank repossessions lowers the value of
Christopher Thornberg, principal of Beacon
Economics, said that high rates of default among borrowers in California are likely to push up
foreclosures, but so far the state's fairly efficient foreclosure system and
active housing market have been able to absorb these properties.
"They get snapped up pretty quickly,"
Thornberg said. "We are not ending up with swaths of empty homes the way
that was being predicted."