Foreclosures nationwide soared 57 percent in March, and rates may be running even higher in Oakland as East Bay cities are caught in the turmoil of the subprime mortgage disaster.
Figures for Berkeley are harder to come by, although Realtytrac.com, a site cited as accurate by a well-placed industry official, reports that 88 Berkeley homes have been repossessed by banks, another 31 are slated for public auction and 103 are in the process of foreclosure—though owners could still pay off arrears and retain title.
Other sites, considered less authoritative, list different numbers. Patrick.net, a site that tracks the housing bubble, cites a report that 61 percent of Berkeley homes for sale—156 out of 255—are foreclosures, with the comparable figures for Oakland as high as 73 percent, compared to 59 percent in Los Angeles, and 57 percent in San Diego and 30 percent in San Francisco. Bargain.com claims 91 homes are in pre-foreclosure status, with 44 in foreclosure, while AOL’s real estate pages cite 131 foreclosures.
The numbers came as a surprise to two local real estate brokers, City Councilmember Laurie Capitelli of Red Oak and Gloria Polanski of Marvin Gardens.
“I’ve only heard of a handful, and most of those are in southwest Berkeley,” Polanski said.
“I haven’t heard of many,” said Capitelli.
One industry official said Berkeley remains something of an island in a troubled market. “People are always going to want to live here,” he said.
Whatever the current totals, the future remains clouded, with the Pew Center on the States predicting in a study released last week that 1 in 20 California homes will be foreclosed in the near future, most in the next two years. California is ranked third among the states, with Nevada’s 1 in 11 leading the list, followed by Arizona with 1 in 18.
Nationwide, the anticipated foreclosure rate is 1 in 33 homes.
Polanski said that after a quick search of the multiple listing service (MLS), she could find only two bank-owned houses and two short sales, while there were reports of troubles with two others.
She said one West Berkeley home that sold for $705,000 last year was foreclosed and is currently on the market for $475,000.
The Berkeley picture contrasts sharply with Richmond, she said, “where almost everything on the MLS has been foreclosed.”
An industry official who declined to be identified said that generally Southern California is much worse off that Northern California. However, a recent 60 Minutes broadcast listed Stockton as the site of some of the worst foreclosure numbers in the country.
DataQuick, another service relied on by the real estate industry, reports that default notices for Alameda County had jumped 119.4 percent between the fourth quarters of 2006 and 2007, compared to 151.8 percent in Contra Costa County and 93.1 percent for San Francisco.
Home sales in the Bay Area are at a two-decade low, the company reported.
Meanwhile, since the last months of 2006, 251 major U.S. lenders have collapsed or faced major restructuring, according to Mortgage Lender Implode-O-Meter, a website that tracks lender failures (see ml-implode.com).
The problem comes when subprime loans convert to significantly higher fixed rates at the same time that housing values plunge with the collapse of the housing bubble, though one industry official was quick to point out that 80 to 90 percent of subprime loans are currently being paid on time.
One major lender heavily hit is Wachovia Corp., which last year bought World Savings, then an Oakland-based, conservatively run and family-owned lender. Wachovia recorded a $393 million first quarter loss for 2008 and officials said $8.3 billion in loans are “non-performing,” meaning payments aren’t being made.
Don Truslow, Wachovia’s chief risk officer, told investors in a conference call last week that “when a borrower crosses the 100 percent loan to value, somewhere north of that and they presumably run into some sort of cash flow bump ... (and) their propensity to just default and stop paying their mortgage rises dramatically and I mean really accelerates up” regardless of credit scores and past history.
Foreclosure sales nationwide leaped 70 percent in the year’s first quarter, according to Foreclosures.com, a site that tracks trends. California leads the list with a total of 120,064.
In California, many—and often most—homes for sale in regional markets are foreclosures.
With economists like Paul Stiglitz openly declaring that the nation is headed into an economic downtown of a scale unseen since the Great Depression that followed the 1929 Wall Street crash, just what the downturn means to the city remains unclear.
Berkeley collects a real estate transfer fee on property sales, and a downturn in prices combined with a declining number of sales could pose problems for an already strapped city budget. City Manager Phil Kamlarz did not returned a call for comment.
While 24 percent of California’s homeowners hold their properties free and clear, according to a just-released study by the National Association of Realtors, 65 percent hold loans at standard, or prime, rates, and one percent hold federally backed FHA and VA loans, that leaves 10 percent holding the troubled subprime loans.
And it’s subprime loans which comprise the lion’s share—65 percent—of the 2.2 percent of loans currently in foreclosure.
Another potential problem is just who may be actually holding the loan papers on any given mortgage. Reports that some sales have been stymied because of lost papers didn’t surprise Polanski, who said that during one sale, she started out dealing with the German lender Deutsche Bank, then the domestic Washington Mutual, only to wind up again with the German bank.
Banks typically sell large blocks of loans on the secondary mortgage market, and paperwork often shows that loans are held by investor pools, and shared among groups of small lenders, she said.
During the 1980s, the Davis-based Farmers savings rose to become one of the nation’s ten largest players on the secondary market, only to collapse in such disarray that the bank had lost track of its mortgages and was feeding back the federal government’s own data to the Federal Savings and Loan Insurance Corporation (now merged with the FDIC) because it couldn’t find the paperwork.
The International Monetary Fund reported earlier this month that total losses in the U.S. from mortgage failures may near $1 trillion, with $232 billion already written off. And the crisis has spread globally, impacting other areas of the economy.
While most of the focus has been on single family homes, Berkeley Housing Advisory Chair Jesse Arreguin said he’s concerned about renters who may be caught in a bind when their landlords default.
“We’ve heard about a lot of problems in Oakland and Richmond and threats of foreclosure,” he said. “And a number of tenants here have contacted the rent board with reports that their landlords were saying they were threatened with foreclosure. We’ve been concerned that they may be using that as a way to increase rents.”
He said the City Council passed a resolution in December directing City Manager Phil Kamlarz to prepare a report on foreclosures and what the city could do to help owners and tenants. “It hasn’t come yet,” he said, “but at some point there will be a report.”
Meanwhile, he said, the Rent Board is developing information for tenants, and at some point will likely send out a mailing.
Scattered news reports document apartment building foreclosures, and Las Vegas has spawned a blog devoted to apartment foreclosures—especially near the Strip—as investment opportunities. But stories about apartments place in comparison to the vastly more frequent accounts of home foreclosures.
One reason may be that apartments are traditionally held longer than single family homes.
Arreguin said the Berkeley City Council will consider a resolution tonight (Tuesday) on supporting Assembly Bill 2586, now pending before the state legislature, which would establish protections for tenants of foreclosed properties, including provisions allowing them to deduct utility bills from their rent if they had taken them into their own names after the landlord stopped making payments.
The ripples of the subprime crisis are spreading through the economy.
Reuters reported April 4 that strip mall vacancies have hit levels not seen since 1996, with major mall vacancies running at post-9/11 rates, while the list of major retailers in various forms of bankruptcy or restructuring continues to grow.
Office vacancy rates nationally are also rising, according to Grubb & Ellis, and Dave Colgren of the California Society of CPAs, e-mailed reporters to say that with corporate earnings falling in the first quarter, “companies are looking for ways to cut expenses and increase profitability. Staffing is one area becoming increasingly under review.”