10 percent reportedly late on mortgages

County figure up from 6.2 percent year earlier

By Roger Showley, UNION-TRIBUNE STAFF WRITER

Thursday, February 18, 2010 at 12:04 a.m.Nearly 10 percent of San Diego County homeowners with mortgages are at least two months late on their payments and are likely to default and fall into foreclosure, a sampling of area credit records shows.

According to Chicago-based Trans-Union, a credit and information management company, a record 9.9 percent of mortgage holders in the county were 60 days or more delinquent in the fourth quarter of last year. That’s up from 6.2 percent a year earlier and 1.5 percent, the historic average, at the beginning of 2007.

California’s delinquency was even higher, 11 percent, while the nation as a whole was at 6.9 percent — both record levels. TransUnion used a sample of 27 million consumers’ credit records, about one-tenth of the total available, to calculate the delinquency rate.

TransUnion said the average mortgage debt for San Diego households at the end of 2009 was $379,271, about $10,000 less than at the beginning of 2007. With the median home price at $325,000 in the fourth quarter, that suggests the typical homeowner owes more than his or her mortgage.

A monthly mortgage payment on a $379,000, 30-year fixed loan currently runs about $2,034, so someone two months in arrears would owe about $6,000, including the current payment.

Norm Miller, a real estate professor at the University of San Diego and vice president of CoStar Group, said the distress is not as widespread as the numbers suggest. About 60 percent of homes carry a mortgage — roughly 600,000 countywide — and about one-third of those were bought at the peak of the real estate boom, 2004 through 2007.

“A point to remember is that 80 percent of foreclosures are in 20 percent of the submarkets,” Miller said — such as in parts of Oceanside, Escondido, East County and South Bay. “I’m not saying Rancho Santa Fe, La Jolla and Cardiff don’t have any foreclosures — they do — but there’s not so much that it creates a tipping point in falling values.”

In lower-priced areas where most foreclosures have occurred, many homeowners have lost value because of their neighbors’ plight. That doesn’t mean they will go delinquent and end up in foreclosure.

“Hopefully, they’ll ride this thing out,” Miller said.

That’s because many owners, while underwater on their loans, are still employed, can afford the payments and know they could suffer severe financial setbacks if they walk away from their obligations.

“These are people that don’t pay attention to the lawyers on TV, are stressed out by the threat of foreclosure and feel they should be responsible and make their payments,” Miller said. “So even though they don’t have any equity in their homes, they understand they’d lose a lot if they walked away.”

He estimated that about 60,000 properties might be delinquent and headed to foreclosure or short-sale — a lender-approved sale for less than the mortgage balance.

“The good news is this — in the last couple of months, if you wanted to do a short-sale, it didn’t take as long,” Miller said, one month instead of six.

Miller and other economists say short-sales and foreclosures will clear the housing distress better than the Obama administration’s loan-modification program, which the Treasury said yesterday had helped only 116,000, or 12 percent of homeowners, out of more than 1 million who have started the process.

“I would say it’s a complete failure at this point,” said Alan White, law professor at Valparaiso University in Indiana.

Phyllis Caldwell, Treasury’s chief of homeownership preservation, said the program was working as intended.

“Struggling families are receiving payment relief and the housing market is showing signs of stabilization,” Caldwell said.

Other observers say many owners soon redefault after their loans are modified. Miller said the program does not work in high-priced California markets where values are far below mortgage balances.

FJ Guarrera, TransUnion vice president of financial services, predicted delinquencies in California would rise to 13 percent by the second quarter of next year, while the national rate may peak at 8 percent.

Guarrera did not estimate a peak for San Diego.

“It got bad over a two-year period and we’re suggesting into the foreseeable future, delinquency rates are going to hang around where they are,” Guarrera said. “I would not be surprised if it would take several years for things to improve in terms of mortgage delinquency.”

Miller said California’s rate is likely to peak at 12 percent, San Diego’s at 11 percent, and distress to start to easing in 1½ to two years as the economy stabilizes and unemployment starts to fall. He noted that unemployment and delinquency go hand in hand — as one falls, the other does, too.

“I think we are about at the peak of unemployment and probably close to a peak in the percentage of delinquency,” Miller said.

Nevertheless, Guarrera said history shows that anyone who is 60 days behind on the mortgage has a tough time making up the difference and becoming current.

“Many if not most of the (delinquent) homes are going to end up in foreclosure,” Guarrera said.

The Associated Press contributed to this report.

Roger Showley: (619) 293-1286; roger.showley@uniontrib.com