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Contrary to all hopes California is reeling under renewed foreclosure onslaught. During the second quarter of 2008 lenders launched foreclosure attacks on a record number of house owners in California. Simultaneously real estate markets have plunged to all time low levels.

There were 121,341 NOD’s or notices of default – the first step in the foreclosure process during the second quarter. It was an increase of 6.6% from the first quarter of this year and a jump of 124.9% from the second quarter of 2007 during which time there had been 53,943 foreclosure notices. DataQuick released the figures. The firm has been tracking foreclosures since 1992 and the numbers were the highest in the second quarter of this year – 2008, since then.

From the facts and figures it appears that the foreclosures are concentrated in some pockets and emanate from specific categories of mortgages. The areas are where there had been a building frenzy till the end of 2006. Prices had ballooned because of money flowing in from easy to get sub-prime loans. Many speculators had swooped in during this period of housing boom and zoom.

From the first to the second quarter there has been a modest increase in foreclosures. This makes many hopeful that foreclosures are now leveling off. Another explanation is that may be many lenders are opting more for workouts with the borrowers than pursuing the line of foreclosures. There is the third possibility that the lenders are so overcrowded and overwhelmed with defaulting borrowers that they do not have the infrastructure to pursue the foreclosure process.

Most of the loans threatened with foreclosure started during September 2005 and November 2006. The average age of the defaulting loans were 26 months as against 16 months noted a year earlier.

Foreclosures have not spared California prime mortgage holders. On an average count they are five months behind payment. On an average loan of $346,400, the borrowers owe $11,583. Borrowers are 8 months behind on equity loans and lines of credit.

In the second quarter 121,341 default notices were issued involving 118,020 houses because some of the borrowers were tripping on multiple loans like primary mortgage as well as line of equity. The default numbers were record breaking in nearly all the 58 counties of California. In Los Angeles County the residential defaults counted to 21,632 residential units. This broke the prior record of 21,444 of first quarter in 1996.

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The hunting instinct has not gone out of vogue – is very much there with outward cosmetic changes. Today busloads of hunters are on a foreclosure safari – trying to target sitting ducks. It is a common scene now – also in Prince William County.

Real estate companies chartered a bus carrying 25 prospective buyers to view the thousands of houses afflicted by foreclosures. This was the first tour of its kind in the region. Mortgage attorney Art Grace told the hunters that they have a great chance to snap up a deal. The public here are not even aware of the gold mine they are sitting on. The bus touched on nine foreclosed units in Gainesville and Haymarket within three hours. There were town-houses and stand-alone houses with price tags ranging from $200,000 to $600,000. One house was practically brand new.

The idea of bus tours is catching on across the country with similar buses rolling in California, Nevada, Michigan and Illinois. These states have been worst hit by the foreclosure crisis.
The spokesperson of the tour operator (Long & Foster Realtors) in Prince William, Eileen Durkan said that hearing about similar hunting parties in California she decided to set the wheels rolling here also. California ideas always run eastwards. She decided to pick it up fast. Compared to other areas in the D.C region Prince William has been severely mauled by foreclosures. In Washington, Arlington and Alexandria metro zone there were 28,455 foreclosure postings in 2007 making it rank 41 amongst the top 100 metros of US. The leading cities were Riverside, San Bernardino, California with 102,506 listings. Los Angeles, Long Beach recorded 93,696 foreclosures.

Amongst the hunter tourists were novices, investors and people who were just curious and interested. While on the bus the passengers were given information about foreclosure hunting by a house inspector, house warranty agent and a loan officer. Information brochures were distributed together with water bottles labeled ‘Foreclosure Tour’. One participant commented that the idea was great and would have been greater if it had started earlier.
Experts feel that if somehow the market is made to turn around things will improve. Right now there are too many units and too few buyers. With more foreclosures in the offing more houses are expected to roll in. Buyers are in a fix sans loan facilities. So it is a no go situation.

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It seemed as if a big party on. Cars rolled in on a foggy Sunday April morning in downtown Riverside. Men in tuxedos guided the traffic. Now that was unusual! People shopping for real estate bargains tumbled out in dockers, sandals and shorts. Don’t let the casual dress code divert your attention. These were all serious shoppers with pockets bursting with cash and checks – perhaps to the tune of millions of dollars.

Who were they? There were investors from San Diego on the look out for an inexpensive property to rent out. Some were novices from Fontana hoping to save a whopping $200,000 on a family unit. Many others came in droves for auction sales of foreclosed houses. California has not seen the likes of this type in decades. On this particular day, two lenders had put 100 properties on the dock. 93 had been sold off before the end of the day. Most of the properties were in fast growing ex-urban and desert areas on Riverside and San Bernardino Counties lying to the east of Los Angeles.

Till the other day the company holding the auction had been a nonentity in the field. Bu during the last few months when mortgages fell and foreclosures rose many lenders brought them back to business from hibernation. It was well worth it. They sold 265 properties in San Diego, Los Angeles and Riverside during only two May weekends. Upbeat, they are planning a repeat performance in Sacramento, Modesto, Atlanta and the Bay region, this summer. The spokesperson of this company described this as ‘counter-cyclical business’ but he refused to disclose the names of the banks involved. He admitted that in some cases the properties were sold for less than what were due in terms of loan. It was a gathering of rain and shine for what was one man’s meat was poison for another. The losers were none to happy but they would rather face losses quickly than linger on it with no hope in sight.

The tuxedo boys were not only outside conducting traffic but also inside the convention answering and guiding people around. In the opposite hall there were 41 loan and 25 escrow officers. Speakers were loud on the soundtrack. Extra chairs were wheeled in. From the bonhomie at the party it did not seem that the process of auctioning foreclosures in California is usually painstaking and time consuming.

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Bankers are watching and waiting with uncertainty the snowballing effect of the sub-prime tsunami crisis.

Even though April provided a breather by a dip of 1% in foreclosure listing, it was still up by 62% compared to last year. Even then it will be far above the average of last year. Statistics pouring in show a worsening of the situation. No one knows the actual number of active sub-prime mortgages, its source of origin or refinancing procedures in Northeast Minnesota and Northwest Wisconsin.

Risky loans had triggered off this crisis. Some of the biggest sub-prime lenders like Ameriquest and New Century Financial are toppling down.

Some regions of the country have remained untouched by this virus – Wyoming, Vermont, North and South Dakota, Mississippi, Delaware and Washington D.C. Topping the list are 10 cities of which six are in California. These six ranks first among the group of notorious 10. Las Vegas comes first. Others claiming this dubious distinction are Nevada, Colorado, Connecticut, Florida, Arizona, Illinois, Michigan, Ohio and Georgia. As a result of this fall out Michigan, Minneapolis and Ohio are reeling under massive layoffs.

Big national financial services are practically non-existent in some important regions. Yet sub-prime activity has been typical with apprehended results. Real estate businesses having taken a U turn, lenders are tightening loan conditions thus putting marginal borrowers in a soup. Their rates of mortgage interest are rising while the value of their property continues to plummet.

The situation is so alarming that Lutheran Social Services have come forward to provide pre-bankruptcy counseling in Minnesota and Douglas County. The sub-prime lending has hit not only the borrowers but also local banks and communities. A ‘teaser’ rate tempts the borrower to fall into the net. Later the net closes in on the catch with disastrous consequences to all but the lender-agent nexus. Sub-prime lending essentially steals business from smaller entities.

Authorities have come forward and tightening the belt of the law – a grim reminder that playing around with lending will attract felony charges coupled with compensation and damages. However it applies only to current frauds and does not extend backwards. Thus primarily the focus is on prevention.

Wisconsin is the only state that has no limits on interest rates. Pay-day lending has been rampant which many regard as an unhealthy drain on the economy. The heat is on to find a solution and save the people.

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A $2.05 billion mixed-use project designed by Frank O. Gehry may provide the city with a vibrant focal point.

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