California Foreclosure Auctions Rise, Homes Fail to Lure Bids

California Foreclosure News

Article Abstract: The March auction of California foreclosures featured over 5,000 homes and condos. This amount was more than triple the last CA foreclosure auction. Only 90% of the properties had bids, an indicator that perhaps even real estate investors are hesitant to jump in. Another interesting figure- 15% of all home sales were from California foreclosure properties. California was the top mortgage originator in 2005, indicating a bit of a frenzy that led to high foreclosure rates throughout the state.

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By Hui-yong Yu

(Bloomberg) -- More than 5,000 California houses and condominiums were offered for sale at foreclosure auctions in March, more than triple the number last September.

Ninety percent of the properties failed to attract bids, a sign that falling prices are keeping real estate investors on the sidelines, according to data compiled by Foreclosure Radar, a new company that tracks such auctions.

The U.S. housing slump, coming on the heels of a surge of lending to borrowers with poor credit histories, is spurring repossessions by lenders as homeowners struggle with mortgage payments. Most of March's foreclosure sales came from loans made in 2005 and 2006 and anecdotal analysis suggests the majority were loans that were made with no down payment, the company said.

``Foreclosures sold at auction now account for 15 percent of all home sales in California and continue to rise,'' Sean O'Toole, Foreclosure Radar's chief executive officer and founder, said in an interview. ``Folks with 100 percent financing and subprime credit are choosing to walk away rather than make payments on a house that's now 10 percent under water.''

The 5,316 properties being auctioned last month had outstanding loan balances totaling $1.99 billion, up from 1,459 properties with loan balances of $512 million in September, the first month Foreclosure Radar compiled statewide data.

Only 520 properties found third-party buyers in March, with 4,796 going back to lenders. The properties that reverted had loan balances of $1.82 billion, Discovery Bay, California-based Foreclosure Radar said.

No Buyers

The 90 percent of homes that failed to lure buyers last month compares with 80 percent in September, when 1,160 homes with loan balances totaling $424.45 million didn't sell. Through the five years ended in early 2006, most properties in foreclosure sales went to third-party buyers, O'Toole, 39, said.

Foreclosure Radar said its data is based on individual sales results at daily foreclosure auctions throughout the state. It counts all of the properties offered at auction as sales.

California is an indicator of the housing market. The state ranked first among the 50 U.S. states in mortgage originations in 2005, the most recent year available, according to data compiled under the Home Mortgage Disclosure Act and supplied to the Mortgage Bankers Association.

There were 2.39 million mortgages originated in the state, or 15 percent of the national total. The dollar volume was 26 percent of the U.S. total, according to the data.

Adjustable Mortgages

California also has the highest incidence of adjustable- rate loans, or higher-priced lending. The state accounted for 31.4 percent of U.S. adjustable-rate home purchase loans in 2005 and 19 percent of adjustable-rate refinance loans, according to Federal Reserve analysis of the data.

``The combination of house price declines, interest resets and very risky loans and risky borrowers means we're going to see the foreclosure rate go up dramatically in the next few years in California,'' said Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California at Berkeley and chairman of Rosen Consulting Group. ``It's going to be a real drag on the housing market.''

Other states are seeing similar rises in foreclosures. Ohio, which had the highest foreclosure rate in the U.S. at the end of 2006, last week began issuing $100 million in taxable municipal bonds to help homeowners refinance mortgages they can't afford.

Ohio Acts

Ohio Governor Ted Strickland, calling the foreclosure situation a ``crisis,'' said on April 2 that the state may have to borrow more than $100 million to help homeowners. Ohio's economy has been hit by declines in manufacturing.

Earlier today, U.S. Senator Charles Schumer and other members of a key banking committee said the federal government should spend ``hundreds of millions of dollars'' to bail out subprime mortgage borrowers facing foreclosure. The money would go to non-profit community groups to help refinance mortgages homeowners can't afford to repay.

The jump in California foreclosures for the most part doesn't yet reflect the effects of increases in variable-rate loan rates, O'Toole of Foreclosure Data said.

``Longer term, this could get worse if resets and those things start piling on,'' said O'Toole, who has invested in more than 150 foreclosure properties. ``On the other hand, if the building of new homes slows down and we get some contraction in the industry supply, maybe we can see a little better outcome. I see more risk than upside at the moment.''

To contact the reporter on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net

For more information and news on California foreclosure rates, please visit our California Foreclosure home page.

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