Thursday, June 07, 2007

How Many Foreclosures Are There?

The LA Times has an article Foreclosures Flood the Market that says lenders in California are sitting on over 3000 foreclosure properties. The largest number are in Riverside County which saw the number of housing developments increase dramatically over the last few years. Of course with 35,000,000 plus people living in California 3000 is a pretty small number in the scheme of things. In Los Angeles County that translates to 953 which is not a lot over the normal number of foreclosures. The question isn't how many are there today but rather how many will there be in the future. I think in some areas it's going to be huge.

I do what are called Broker Price Opinions(BPO's) for banks. Often these are what banks call review appraisals or drive by appraisals. I get paid a nominal fee to give a value on properties that have sold, people who want an equity line of credit and on more recently on those properties that the bank thinks may be shaky and wind up in foreclosure. The main reason I do BPO's is that it keeps me in touch with a large segment of the market.

Today I had a number of requests for a value 90-120 days out.. which covers the three months it generally takes a lender to go through the process of foreclosure. The property was in a nice part of Hawthorne. When I pulled the title report I notice that... yep, this was 100% financing but more important I found the price paid rather high for the time frame when the property sold.

This isn't the first time I have noticed that a buyer may have overpaid using 100% financing. So I got curious and pulled all similar properties in the area that sold within the last 5 months. 90% were 100% financing but worse most of them were to minorities who may not speak English and New Century was the #1 lender in the group of 20 or so that I pulled.

Will all these homes go into foreclosure? I have no idea but I do know that a lot of these people bought homes they couldn't afford and had no business buying . It is very likely they will be in trouble in the future. I did an appraisal a few weeks ago where the owner and her husband had basic jobs... she cleaned rooms at the Airport Hotels.. her husband was a roofer who had recently been laid off. When I met their agent at the property he told me that they had been qualified at a combined salary of $11,000 a month to get the loan. No way did they make that kind of money. They were ripped off by a lender and possibly the agent who sold the home to them. The people who were involved in that transaction should be ashamed of themselves.

I haven't seen a lot of these situations in the beach cities but I know there will be some. Looking at what is happening in Hawthorne and I suspect also in Lawndale and Gardena there will be problems for a lot of people who should not have bought a home.

I'm going to do a search of sold townhomes in Redondo Beach for the time frame of November 1, 2006- December 31, 2 006 ( when sales picked up) and report back what I find. I sure hope I'm right and most people who bought during that period had good financial resources. I'll be reporting on what I find some time next week...

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