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Home foreclosures hit record in California

By David Streitfeld, Times Staff Writer
11:23 AM PDT, July 24, 2007

A sagging real estate market and tighter lending standards are exacting a rapidly growing toll on Californians, forcing them from their homes in record numbers, figures released today show.

Foreclosures in the state during the second quarter totaled 17,408, up 799% from the same period last year. The current rate handily eclipsed the previous foreclosure peak set in 1996, when the state was in the final throes of six-year slump.

The two eras are sharply different.

Back then, the primary culprit was massive defense cutbacks that led to high unemployment. Without a paycheck, people couldn't pay the mortgage.

This time, the economy is generally sound but many people have become trapped in loans that are resetting to rates that exceed their ability to pay. Those excesses need time to make their way through the system.

"We're clearly in for a worse third quarter and an even worse fourth quarter," said John Karevoll, chief analyst at DataQuick Information Systems, which compiled the data.

Default notices, which are the precursor to foreclosure, also increased in the second quarter but not as sharply. Lenders filed 53,943 default warnings during the quarter, up 158% from a year earlier.

Karevoll said the default numbers reflected a wide regional disparity. They were at record levels in Riverside, Contra Costa, Sacramento and most Central Valley counties, where many of the state's first-time buyers live.

In Los AngelesCounty, however, there were 10,393 notices of default — less than half the first-quarter 1996 peak.

Statewide, default notices peaked in the first quarter of 1996 at 61,541. The previous record for foreclosures was 15,418 in the third quarter of 1996. DataQuick's statistics go back to 1988.

When the increase in housing stock over the last decade is taken into account, foreclosures are running roughly equal with the 1996 peak.

Ron Barnard, owner of Home Center Realty, which has several offices in the Inland Empire, predicted that the shake-out would continue for two more years. He said there was a year's supply of houses on the market now in San Bernardino and Riverside counties, up from a three-week supply at the height of the boom.

Yet for all the grim numbers, Barnard said, the current environment feels nothing like a decade ago.

"In the 1990s, it was really, really bad," he said. "MorenoValley, Fontana, Perris had a tremendous number of boarded-up houses. You don't see that now."

Perhaps, he speculated, it was so easy to get into houses during the boom — many lenders didn't even require down payments — that it's easy to give them up too.

"You walk in with nothing in your pocket, it's easier to walk away from it," Barnard said.

As the pain spreads — especially if the economy takes a turn for the worse — that casual attitude might wane.

"In the beginning, we were thinking the foreclosures were going to be limited to low-income, high-minority neighborhoods targeted by predatory lenders," said Ester Cadavid of Los Angeles Neighborhood Housing Services. "Now we're seeing a shift to the middle class. They're in trouble too."

david.streitfeld@latimes.com