The pace of Los Angeles foreclosures has been slowing down, but strategic defaults and adjustable-rate mortgage loans are expected to continue pushing a large number of homeowners into foreclosure.
According to the California office of the Center for Responsible Lending, 55 percent of the almost $300 billion worth of ARM loans nationwide were taken out by Californian homeowners and about 44 percent of all option ARMs nationwide went to Californians.
Because median home prices have plunged in Southern California by 46 percent since 2007, the year a lot of California ARM loans were given to borrowers, these borrowers will be hit with higher monthly payments that they cannot afford to pay.
Option ARMs were developed by savings and loans institutions in California in the 1980s. Originally, these loans were made for affluent borrowers with fluctuating but high level of incomes. During the boom years, lenders extended these loans to borrowers who do not pass the regular standards for home loans. These loans enabled borrowers with low down payments, low credit scores and incomplete financial documents to take out loans to buy homes.
Most option ARMs were written to reset after five years and at any time the principal balance reaches the established ceiling. A number of mortgages have already reached the ceiling and the five-year time frame this year and many of these have already entered lists of Los Angeles foreclosures. Many more are expected to default and subsequently get foreclosed.
California foreclosures also declined in February, but the state still led the country in total number of foreclosure postings, which reached 68,562. Out of these postings, 12,546 units have already entered bank listings of foreclosed homes for sale.
Statewide foreclosure activity slowed both on a year-over-year and month-over-month basis, with a 15-percent decrease from February 2009 and a 4.5-percent decrease from January. Despite a decline in foreclosure rate, going down from third place in January to fourth place in February in the state rate rankings, California postings still topped all other states.
Florida, the second-highest in number, posted 54,032 filings, lower by 14,530 units than California.
Despite home price improvements in Los Angeles and in other parts of Southern California, the median price level is still far below the $505,000 median peak in the middle of 2007.
With a huge number of underwater borrowers in the region and with the increasing realization that home prices will not recover in many years, more area homeowners are walking away from their mortgages and leaving their homes to lists of Los Angeles foreclosures.
