Mortgage woes propel California housing foreclosures to record high

Mortgage lenders launched more than 70,000 foreclosure proceedings in California in the third quarter of 2007. This marks a record for the state, where housing markets are slumping amid mortgage market turmoil.

Mortgage lenders filed 72,571 notices of default against delinquent borrowers from July to September, 34.5 per cent higher than the prior quarter and a staggering 166.6 per cent higher than a year earlier, according to a report by DataQuick Information Systems, a California-based real estate information service.

Third-quarter defaults topped the state''s previous peak of 61,541 in the first quarter of 1996, showing more and more mortgage borrowers are failing to keep up with loan payments. California''s high home prices required many home buyers, especially those who bought at the tail end of the housing boom in 2005 and 2006, to use adjustable-rate mortgages to finance purchases.

The low initial rates offered on those loans are now expiring, and the new higher rates are proving too difficult for many borrowers to pay. Mortgage lenders were too aggressive in lending to too many borrowers with questionable personal finances, says president of DataQuick Marshall Prentice. "A lot of these loans should never have been made," he points out.

The real issue now is whether the real estate market and the economy will digest these bad loans over the next year or two, or if housing market distress will bring the economy to its knees. Right now, most California neighborhoods do not have much of a foreclosure problem.

But half of California''s mortgage defaults are concentrated in 293 zip codes, almost all in the Riverside and San Bernardino counties of Southern California, and in the state''s Central Valley, where falling home prices are making refinancing distressed mortgages difficult.

The median home price last quarter for the 293 zip codes was $352,250, down 11.7 per cent from a peak of $399,000 in the year-earlier quarter.