More than 236,000 homes were lost to foreclosure in California last year, topping the previous nine years combined, data released Tuesday shows. And the number of borrowers who defaulted on their payments hit a record high of more than 404,000.
The wave of foreclosures, which began in early 2007, was initially triggered by falling home prices and resets on adjustable-rate loans. But lenders and industry analysts say the trend is now being exacerbated by rising unemployment, which has shot up to 9.3% in California.
"The people who are defaulting now are not really people who recklessly got into loans they never could have afforded," said Evan Wagner, the communications director for IndyMac Federal Bank, a big mortgage lender that is being bought by private investors after its collapse last year. "These are people who have lost their jobs or who have had their hours cut back at work."
Wagner said that up to 80% of the borrowers seeking an easing of their loan terms are doing so because of a loss of a job or income.
More evidence of that trend can be found in the default rate on "prime" loans made to borrowers with good credit. Defaults on these loans rose 340% in the three months ended Sept. 30 over the same period in 2007, according to the latest data from the Mortgage Bankers Assn.
California was last hit by massive foreclosures in the early 1990s, when the state was also struggling with an economic downturn and rising unemployment. At that time, there were about 10 foreclosures for every 100 layoffs, said John Burns, an Irvine real estate consultant.
In this cycle, he said, there will be about 15 for every 100.
"The price declines have been more severe this time, and the job losses are looking worse," Burns said. "Consumers are more likely to give the keys back to the bank because they don't have anywhere to turn."
In California, the number of homes lost to foreclosure rose 180% last year compared with 2007, according to MDA DataQuick, a real estate data firm. It was the largest number of foreclosures since DataQuick began tracking them in 1988.
The number of foreclosures actually dropped this fall, to about 14,000 in November from about 25,000 in September. But that decline was likely a temporary blip because of a new state law that forced lenders to make more efforts to contact borrowers before foreclosing, said DataQuick analyst Andrew LePage, and doesn't signal a reversal of the trend.
