California Foreclosures, Mortgage Defaults Soar

By Jim Christie

SAN FRANCISCO (Reuters) - Underscoring the impact of falling home prices in California, foreclosures in the state rose more than 400 percent in the fourth quarter from a year earlier and default notice filings against distressed mortgage borrowers more than doubled, a report issued on Tuesday said.

The DataQuick Information Systems report said the 31,676 foreclosures in the fourth quarter were more than double California's previous peak in 1996 and marked a 421.2 percent jump from a year earlier. The fourth-quarter default notices represented the highest number in more than 15 years, it said.

The report came as the U.S. Federal Reserve, in an unusual move between meetings, cut the benchmark overnight interest rate by three-quarters of a percentage point, the biggest reduction in more than 23 years.

The 75-basis-point cut brought the target for the federal funds rate down to 3.5 percent amid concerns about recession and tight credit available to businesses and consumers, including households facing the prospect of rising payments on adjustable-rate mortgages.

The cut may translate into smaller-than-expected upward adjustments to interest rates on their loans and monthly payments that are higher yet manageable, potentially reducing the number of households that default on mortgages and lose homes to foreclosure.

"The increase will be less. There certainly will be a pool of homeowners it might help," said Cynthia Kroll, a senior regional economist at the University of California, Berkeley's Fisher Center for Real Estate and Urban Economics.

Mortgage broker Kevin Clay, president of San Carlos, California-based REIGN Real Estate Services Inc, agreed, adding that households with home loans in addition to first mortgages should benefit as well.

"It will calm down the reset market," Clay said, "For people who are teetering and tottering and have some equity in their house and want to stay, the rate cuts should translate into a lower payment immediately on home-equity lines."