Bank Foreclosures Listings in Bay Area Slow, Defaults Rise

by Simon Lindsay on cities

Bank foreclosures listings in the San Francisco Bay Area slowed in October, but defaults continued to rise, based on data from a real estate firm that tracks nationwide foreclosures.

In October, more than 5,600 residential units in the Bay Area were hit with default or foreclosure filings, a substantial drop of 34 percent from September but nearly 17 percent higher than filings in October last year.

Of the over 5,600 foreclosure filings, the number of units repossessed by banks significantly decreased while the number of default notices substantially increased.

The drop in REO units, according to analysts, is largely due to the stepped up efforts of the Home Affordable Modification Program to modify more distressed mortgages and prevent them from going into foreclosure.

But according to Mark Hanson, director of real estate research company Field Check Group, many borrowers whose mortgages were modified are expected to redefault, increasing the number of Bay Area foreclosures in the coming months.

Hanson explained that loan modifications create a huge backlog of foreclosures, temporarily holding off foreclosure properties from entering bank foreclosures listings. Based on foreclosure reports studied by Hanson, about 50 to 70 percent of all owners of modified mortgages redefaulted.

In October, over 2,400 Bay Area households were given notices of default, a substantial increase of more than 72 percent from October last year. Another 2,234 households went on to the next stage of foreclosure – the provision of notices of trustee sale, marking an increase of more than 37 percent. Another 947 homes were finally repossessed by banks, representing more than 46 percent of increase.

The trustee sale documents notify homeowners that their houses are up for foreclosure auction, and most of these properties end up being repossessed by banks, but recently, because of the increase in loan modifications, the number of REO units has been dropping.

Foreclosure researchers contended that the major reasons for foreclosures in October were unemployment and the resetting of pay option adjustable-rate mortgage loans. They said that borrowers who took out ARM loans usually had higher credit scores than subprime mortgage borrowers, but chose lower monthly payments during the initial years of the loan term.

Based on the nationwide foreclosure report for October, 7 of the country’s large metro areas with the highest rates of properties entering bank foreclosure listings were in California, topped by the Vallejo and Modesto areas which both had a foreclosure rate of one out of every 81 households in foreclosure.

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