A sagging real estate market and tighter lending standards are exacting a growing toll on Californians, forcing them from their homes in record numbers, figures released Tuesday show.
Foreclosures soared to 17,408 for the three months ended June 30, an increase of 799% from the same period last year. The current rate handily exceeds the previous foreclosure peak set in 1996, when the state was in the final throes of a six-year slump.
Separately, Countrywide Financial Corp. -- the nation's largest mortgage lender -- reported a sharp rise in delinquencies, even among customers with good credit. That sent shivers down Wall Street, helping to trigger a 226-point plunge in the Dow Jones industrial average.
Although a relatively small fraction of homeowners face eviction, the concern is that a flood of foreclosures will further weaken housing prices -- and make people less willing to spend money.
"The economy will bend further under the weight of the mounting housing and mortgage problems, but it will not break," said Mark Zandi, chief economist at Moody's Economy.com.
That's what passes for optimism these days. Others are more downbeat.
"All the artificial stimulus housing gave the economy is going to go away," said Rich Toscano, a financial advisor with Pacific Capital Associates in San Diego who runs the popular Piggington.com real estate website. "There will be individual pain for people who made the wrong decisions. We all may end up in a recession."
The good news, as seen by Toscano: "I don't envision a 'Grapes of Wrath' scenario where we all have to pile in the family car and look for harvesting work."
Paula Walton said the Carson house she bought in 2003 was due to be foreclosed today. She first asked her lender for leniency, pointing out that she has endured a series of personal setbacks that included ovarian cancer, her mother's illness and her partner's walking out.
"I was begging and pleading, 'Please lower the payments so I can get back on my feet,' " said Walton, 43, a clerk on the Long Beach docks.
The lender didn't budge, Walton said, so she filed for bankruptcy protection to keep, at least for the moment, her house.
Ester Cadavid of Los Angeles Neighborhood Housing Services, a not-for-profit lender and counselor that is trying to assist Walton, said the first-time home buyer was an example of how default woes were spreading.
"In the beginning, we were thinking the foreclosures were going to be limited to low-income, high-minority neighborhoods targeted by predatory lenders," Cadavid said. "Now we're seeing a shift to the middle class."
That assessment was bolstered by Countrywide's warning that a rising number of its mortgage customers were behind in their payments, including mainstream borrowers.
The Calabasas-based company said that 4.6% of its good-credit customers with lines of credit or home equity loans were at least 30 days delinquent, up sharply from 3.8% three months ago. A year ago, the rate was 1.8%.
Most analysts say the housing market won't stabilize until 2008 or 2009. The so-called soft landing that was much talked about last year is rarely mentioned anymore.
The rising foreclosure rate is tied to stricter lending standards and weakening home values. With housing prices flat or falling, lenders are less willing to refinance loans -- especially to borrowers with shaky credit who are most likely to miss payments.
Southern California, buoyed by the relative strength of L.A. County, saw the number of foreclosures in the three-month period ended June 30 rise to 9,504. Although that's up 725% from a year earlier, it's still well below the previous peak of 11,494 in the third quarter of 1996.
Statewide, the previous peak for foreclosures was 15,418 in the third quarter of 1996. All the foreclosure and default numbers were compiled from county records by DataQuick Information Services, a La Jolla firm whose statistics go back to 1988.
When the increase in housing stock over the last decade is taken into account, foreclosures in the state are running roughly equal with the 1996 peak. But if the numbers are the same, the two periods are sharply different.
Back then, the primary culprit for the rise in foreclosures was massive defense cutbacks that led to high unemployment. Without a paycheck, people couldn't pay the mortgage. As the housing market crashed, the pain spread affecting even those who still had jobs.
This time the economy is generally sound and unemployment relatively low, but many people have gotten trapped in adjustable-rate loans that are resetting to levels that exceed their ability to pay.
Among the hardest-hit areas are Riverside and San Bernardino counties. Their low prices drew first-time buyers who used adjustable loans. More than 1 out of 5 foreclosures in the state take place there.
Yet the number of those employed in the counties rose by 44,500 in the last year, said John Husing, an economist at Economics & Politics, a Redlands consulting firm.