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Paul Kiesel
Paul Kiesel
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California and Florida Account for 1/3 of all Troubled Mortgages

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8.8 percent of U.S. home loans are past due or in foreclosure, or close to 5 million loans. (About a third of Americans do not have mortgages.) However, in regions where home prices had soared over the last decade (in southwest and southeast states like Arizona, California and Florida, respectively), the foreclosure/delinquent rate is almost double the national average.

For instance, California and Florida, accounted for nearly a third of all mortgages that were in foreclosure or 90 days delinquent, according to The New York Times. Rising home prices, a boom in housing construction and an influx of subprime mortgages contributed to the economic upswing in those two states earlier in the decade, but now the fallout from those earlier positive factors are the “main drivers” of the national foreclosure trend and its other negative repercussions.

Falling home prices are also contributing greatly to foreclosure, not just the subprime fiasco. Homeowners, subprime and prime borrowers, who owe more on their loan than their homes are worth are more likely to default if they encounter other financial distresses, such as job loss or medical hardship.

In the early 1990’s, when we last had a housing crash similar to the one we’re seeing currently, housing prices did not fall nationwide and even in local markets they fell much more slowly. The current housing meltdown has resulted in home prices falling about 16 percent from their peak in the summer of 2006, according to Standard & Poor’s/Case-Shiller index. Economists expect the declivity of prices to bottom out at 25 percent.

And now mortgage servicing companies are unable to keep up with loans that are awaiting foreclosure and have little room to adjust mortgages or help borrowers in underwater mortgages. Many borrowers in underwater mortgages who did not put any money down when the loan was taken outare going to add to the foreclosure frustration, because they have little to lose in walking away from the loan. Until Congress is able to come up with a plan to refinance up to $300 billion in loans using the FHA, mortgage servicing firms are going to allow this problem to reach new heights or, depending on how one look’s at it, new lows.