SAN FRANCISCO (Reuters) - Mortgage lenders launched more than 70,000 foreclosure proceedings in California in the third quarter, marking a record for the state, where many housing markets are slumping amid mortgage market turmoil, according to a report released on Friday.
Mortgage lenders filed 72,571 notices of default against delinquent borrowers from July through September, up 34.5 percent from the prior quarter and 166.6 percent from a year earlier, according to the report by DataQuick Information Systems, a La Jolla, California-based real estate information service.
California’s third-quarter default level topped the state’s previous peak of 61,541 in the first quarter of 1996, reflecting a surge in mortgage borrowers failing to keep up with loan payments.
The most populous U.S. state’s high home prices required many home buyers, especially those who bought at the tail end of its housing boom in 2005 and 2006 and in relatively affordable markets, to use adjustable-rate mortgages to finance purchases.
Low initial rates on those loans have been expiring and new higher rates are proving too much for many borrowers.
“There was a lot of funky financing that has gone bad,” said DataQuick analyst Andrew LePage.
Mortgage lenders were too aggressive in lending to too many borrowers with questionable personal finances, added Marshall Prentice, president of DataQuick.
“We know now, in emerging detail, that a lot of these loans shouldn’t have been made,” Prentice said.
“The issue is whether the real estate market and the economy will digest these over the next year or two, or if housing market distress will bring the economy to its knees,” he said. “Right now, most California neighborhoods do not have much of a foreclosure problem. But where there is a problem, it’s getting nasty.”
Half of California’s mortgage defaults are concentrated in 293 zip codes, almost all in the Inland Empire of Southern California, made up of Riverside and San Bernardino counties, 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 percent from a peak of $399,000 in the year-earlier quarter.