Defaults up as home prices fall in Placer County

There you are, living in the house of your dreams. It cost you $500,000, but you're only paying $1,100 a month after you 100-percent financed your home with an interest-only pay-option adjustable rate mortgage, known as an ARM. Then the market changes. Your completely financed home, after the market has cooled, is now going to cost you almost $4,000 a month for your mortgage. Welcome to the world of some of Placer County's residents. According to DataQuick Information Systems' latest report, default notices, the first step in the foreclosure process, have risen 262.4 percent in the fourth quarter of 2006 in the county, exploding from 149 notices in the fourth quarter of 2005 to 540 in 2006. Placer's rise is the second highest increase in the state, according to the La Jolla-based real estate statistics research firm. To combine with the default notices, median home prices in the region continued a downward trend according to the latest figures released at the end of the year by the Placer County Association of Realtors. The median home price for the county in December 2006 was $439,700 with 302 homes sold in the month. The median sales dropped 9.3 percent from 2005 when the median price was $485,000 with 315 homes sold for the same month. "I see a decline for Placer County. One of the things lenders are doing, because Placer County was one of the fastest-growing markets appreciation wise, is they put a review on the appraisals," said Mark Champlin, owner of MAC Real Estate Services in Auburn. "Almost every lender is putting a second review on the appraisals because Placer County went up so fast and it's subject to change fast." However, despite the median being lower to close out the year, there were price increases for some areas from November to December 2006. The Loomis/Penryn area was the leader with a median sales increase from $525,000 in November to $637,000 in December with 11 homes sold - an increase of more than 20 percent. Granite Bay, Meadow Vista and surrounding areas, Rocklin and Lincoln all saw increases from November to December. The Auburn/Newcastle, Roseville and Foresthill regions experienced decreases. Numbers for the month of January were not available as of press time. Even though figures showed an upward trend in some areas, the overall Placer County real estate prices has continued to go down, making those who jumped in at the height of the boom feel the pinch. "Mortgage defaults have definitely increased. I used to look at the paper and see one every once in a while, now I look in the Journal and I see three or four," said Kathy King, a mortgage broker with California Mortgage Advisors Inc. in Auburn. "It's kind of scary because Auburn hasn't historically been a big area for foreclosures."The reason for the increase is because interest rates were low for a long period of time and consumers were getting loans that normally would be out of their reach, King said. Consumers who got 100 percent financing on negative amortization loans and other adjustable-rate mortgages are starting to feel some discomfort, and more could be on the way. "1.5 trillion in loans will be adjusting this year (nationwide). They're going to adjust a lot, some will adjust two percent," King said. "It's going to be an interesting year to see what happens with foreclosures, that's for sure."Lenders sent out 37,273 default notices to homeowners statewide, making it the highest level in more than eight years, according to DataQuick. "Several factors are at play here. The numbers last year and the year before were very low because of strong sales and appreciation. Also, most defaults occur a year or two after the loan was made, so we're in a period where the loan pool is at risk," said DataQuick's president, Marshall Prentice. "We're in the midst of an adjusting market right now, and we won't know until spring or summer if this is ominous or not."While some consumers might be headed for some rough times, others refinanced, changing their adjustable mortgages to fixed-rate loans. "I had a five-year ARM that didn't adjust for another year, but I wanted to make sure that I got it refinanced, I knew it would adjust up quite a bit," said former Auburn mayor and city councilwoman Cheryl Maki, a client of King's. "The one on my second home ... it started going up every month. I like to know exactly what my bills are, that "(the adjustable rate) is very unsure."While Maki has moved over to fixed loans for her properties, she does feel compassion for those who're in a dire situation. "I feel sorry for those people who got into a house that was priced high and got interest-only loans and are now upside down on the mortgage," Maki said. "Because they're first-time buyers, a lot of them, and they're trying to buy a home and it's a fortune."DataQuick, which reports that homeowners were a median five months behind on their payments when the default process began, says most homeowners come out of the foreclosure process by bringing their payments current. However, about 32 percent of homeowners who were in default in early 2006 actually lost their homes to foreclosure in the fourth quarter. A year prior that number was just 8 percent. So what to do for those whose monthly mortgage payments have gone up?"Anybody who bought a home in the last two years cannot refinance, they have to ride that storm out," said Champlin, a licensed real estate and mortgage broker since 1979. "I can't refinance anybody, I get calls all the time. They are coming out of a 4.75 (interest rate), it had a three-year window on it, and the reality is they're looking at a 6.5 (rate)."If homeowners are already behind on payments, or feel they won't be able to make them when their loan adjusts, King recommends contacting the lender and see if some type of alternative payment plan can be worked out to get back on track. "The lenders are really bending over backwards," said King, who's been in the mortgage business for 30 years. "Instead of facing those short sales or foreclosures, they've been working with borrowers on their own."While the current situation my be tough for some, a general theme from brokers and knowledgeable real estate investors is, make the payment - the market will go back up. "It's got to be tough and be scary, but if they can make that payment they should try and make it," Maki said. "Because I think the property values will come back up, they always do."The Journal's Andrew DiLuccia can be reached at andrewd@goldcountrymedia.com.