Sacramento-area home foreclosures keep rising -- and more pain is on the way

Last weekend Paul Sosa and his wife moved their furniture out of a Marysville home they bought in October 2005 and sent it to a rental in Sacramento.

On Thursday, their Yuba County house will be repossessed.

That means the Sosas are part of a troubling – and growing – trend.

During the first three months of the year, banks repossessed a record-shattering 5,278 homes in the Sacramento region, La Jolla-based DataQuick Information Systems said Tuesday.

Put another way: The area's first-quarter foreclosures already are half of last year's entire total.

DataQuick now tallies 15,327 capital-area foreclosures since January 2007 as the post-boom housing crisis has deepened in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties.

The phenomenon is coloring the region with heartsick tales of financial misery. Yet it is also bringing a dramatic reshuffling of home ownership as buyers priced out of the market at its peak can now snag homes at much lower prices.

The latest foreclosure count shows that for all the initiatives by government and nonprofit and private sectors to keep people in their houses, the telling trend remains a sustained, dramatic rise in home losses and loan defaults. The forecast is for more of the same in the months ahead.

Alongside the foreclosures in January, February and March, lenders filed 9,764 notices of default – the first warnings that go out when borrowers miss two or three consecutive monthly payments. DataQuick said two-thirds of those are likely to become foreclosures.

"We expect foreclosure rates in Sacramento to rise as long as house prices are declining," said Mark Fleming, chief economist of Santa Ana-based First American CoreLogic. Fleming said 6.1 percent of mortgages in El Dorado, Placer, Sacramento and Yolo counties are 90 days late. A year ago it was 2.1 percent.

Statewide, DataQuick reported 47,171 first-quarter foreclosures – triple the peak of 15,418 in the third quarter of 1996, although the state has seen a huge increase in the number of homes since then.

Still, in a sign of more trouble to come, lenders issued 113,676 notices of default statewide. That was up from 81,550 the previous quarter.

"We knew beforehand that there were going to be more foreclosures," said Howard Roth, chief economist at the state Department of Finance. "It was something to actually see it. You've got to get through a lot of these foreclosures before you can feel comfortable."

DataQuick officials attributed most of the damage to falling house values, which make it hard for troubled borrowers to refinance or sell.

In Marysville, Sosa and his wife, Pauline, found themselves with a home worth less than they owed. Paul Sosa said they were caught in a risky loan scheme that overstated their income, enabling them to buy a $341,000 home now worth – at best – $270,000. When their monthly payment jumped by $500, they were finished.

"I'm not the only one losing a home. … My next-door neighbor, he lost his house, too," said Sosa, 71.

In Sacramento County, median sales prices – the point where half cost more and half less – have fallen 27 percent the past year. Sales prices have fallen about 20 percent in Placer and El Dorado counties and 31 percent in Yuba County. Federal housing data show area home prices have plunged as fast during the past two years as they did during the 1990s downturn.

Meanwhile, most of the riskiest subprime loans made in 2005 and 2006 will be readjusting this year, meaning more of those homeowners may face higher monthly payments, DataQuick reported.

LoanPerformance says that the number of California's subprime loan resets will begin to fall sharply early next year. An estimated 6.6 percent of those loans are resetting this month. In April 2009, 1.8 percent will reset.

But there are looming threats from other risky loans. Those include a large number of "Option ARMs" – loans that gave homeowners the choice of paying only a small portion of the loan costs for a limited amount of time. When the loans reset, monthly payments soar.

Area debt and mortgage counselors say the continued housing turmoil has spurred a dramatic change in their clients' attitude. More and more, they say, they are hearing people talk about simply walking away from their mortgages, an idea promoted on several Web sites.

"Some of that is coming because of the marketing of that as an option," said Pam Canada, executive director of the NeighborWorks HomeOwnership Center of Sacramento, a nonprofit counseling group. "We try to tell people to come to a workshop and get some individual counseling and find out what your true options are."

Elk Grove homeowner Jenny Lawson said a credit counselor helped her persuade a lender to modify her loan. Lawson, who used By Design Financial Solutions, said her modification delays for five years an adjustable-rate loan reset.

"I always want to encourage people," she said. "There is hope. You can save your house."

About the writer:

• Call The Bee's Jim Wasserman, (916) 321-1102. Read his Home Front blog at www.sacbee.com/blogs. Bee staff writers Dale Kasler and Phillip Reese contributed to this report.