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					Understanding the Foreclosure Crisis in California
John Olson Community Development Department Federal Reserve Bank of San Francisco

June 4, 2008
Analysis of First American LoanPerformance data provided by the Federal Reserve Board of Governors. Do not cite or reproduce without permission.

Overview of Presentation
What are the trends in delinquencies and foreclosures in California?
Mortgage Bankers Association data on delinquencies and foreclosures

What are the primary drivers of foreclosures in California?
Declining house values Large percent of subprime and nontraditional loans
First American Loan Performance data on subprime loans

Impending resets may trigger further borrower distress and increased rates of delinquency

What efforts are underway to help prevent foreclosures and stabilize neighborhoods?

Data Caveats
Data on the real estate and mortgage markets are collected by many different sources, most proprietary and hard to assess As a result, it is important to consider the limitations of data presented
Different definitions of subprime may affect the reporting of rates of delinquencies and foreclosures Different methodologies and different sampling methods may affect the reports; the “black box” nature of these data make it difficult to assess accuracy Aggregated data at the zip code level can mask significant geographic variation and the types of borrowers affected

Trends in Delinquencies and Foreclosures

California has seen a rapid increase in foreclosure starts
1.80 1.60 1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00 Oregon Idaho Washington Utah Hawaii Alaska Arizona California Nevada

Q1:2007

Q2:2007

Q3:2007

Q4:2007

Source: Mortgage Bankers Association, National Delinquency Survey.

California: Foreclosure Trends
Mor tgage For eclosur es Star ted: Califor nia
NSA, % 1. 2 1. 2

1. 0

1. 0

0. 8

0. 8

0. 6

0. 6

0. 4

0. 4

0. 2

0. 2

0. 0 01 02 03 04 05 06 07
0 3 /0 7 /0 8

0. 0 Sour ce: Mor tgage Banker s Association /Haver Analytics

California: Delinquency Trends
All Mor tgages Past Due: Califor nia
NSA, % 6. 00 6. 00

5. 25

5. 25

4. 50

4. 50

3. 75

3. 75

3. 00

3. 00

2. 25

2. 25

1. 50 01 02 03 04 05 06 07
0 3 /0 7 /0 8

1. 50 Sour ce: Mor tgage Banker s Association /Haver Analytics

1st Quarter 2008 Servicer Data Hint at Scale of Problem in California
While some of the jump may reflect increase in number of servicers reporting data, these numbers paint a dire picture of the number of properties entering foreclosure.

California, 60+ Delinquencies, All Loans
Q1-2007 Q2-2007 Q3-2007 Q4-2007 Jan/Feb 2008

52,597

64,679

84,632

115,300

171,165

California, Foreclosure Starts, All Loans
Q1-2007 Q2-2007 Q3-2007 Q4-2007 Jan/Feb 2008

4,985

5,688

8,318

8,240

21,924

Source: Hope Now Servicing Data, February 2008, http://www.fsround.org/hope_now/pdfs/FebruaryStateData.pdf

Delinquency Rates Vary Significantly by Mortgage Type
California: Delinquency and Foreclosure Rates, 4th Qtr 2007

Mortgage Type Prime Fixed Prime ARM Subprime Fixed Subprime ARM FHA

Percent Past Due 1.73 6.15 13.78 20.39 8.64

Foreclosures Started 0.12 1.26 1.18 7.17 0.53

Source: Mortgage Bankers Association, National Delinquency Survey, 4th Quarter 2007

Trends in House Values

Foreclosure Rates Closely Track Declines in House Values in California
Mor tgage For eclosur es Star ted: Califor nia
NSA, %

OFHEO House Pr ice Index, Califor nia
1995=100 1. 2 320

1. 0 280

0. 8 240 0. 6 200 0. 4

0. 2

160

0. 0 01 02 03 04 05 06 07
0 5 /3 0 /0 8

120 Sour ces: MBA, OFHEO /Haver

Trends in CA Regional Housing Markets
400

United States
350

California Los Angeles

300

Inland Empire San Francisco

OFHEO House Price Index

250

Stockton

200

150

100

50

0 Q1:2001 Q1:2002 Q1:2003 Q1:2004 Q1:2005 Q1:2006 Q1:2007 Q1:2008

Subprime Loan Characteristics

California Home to Significant Concentration of Subprime Loans

Many mortgages have “risky” features
Among owner occupied, first lien subprime loans in the LoanPeformance data, February 2008, for California
Average balance of approximately $342,000 94.1 percent had a prepayment penalty at origination 33.3 percent were “interest-only” loans 36.3 percent had a High LTV at origination 56.5 percent were cash-out refinance loans Only 52.6 percent had full documentation 73.3 percent had a variable interest rate
Source: Analysis by Federal Reserve Board of Governors, First American LoanPerformance data, February 2008.

Interest-Rate Resets
Economic research has shown that house value declines are more important than “resets” in predicting foreclosure
Resets do not appear to be the trigger for foreclosure Current patterns of delinquency and foreclosure are being seen even before resets are occurring

But coupled with house price declines in California, resets may increase borrower difficulties and increase the volume of delinquencies and foreclosures
In California, for owner-occupied loans with a variable interest rate
33 percent have already reset 38.8 percent will reset by February 2009
Source: Analysis by Federal Reserve Board of Governors, First American LoanPerformance data, February 2008.

California’s “Hot Spots”

Affected Areas: Suburban Fringe as well as Older, Urban Neighborhoods

Source: Analysis by Federal Reserve Board of Governors, First American LoanPerformance Data, February 2008. Data represent a sample of subprime loans, approximating 70 percent of subprime loan volume. Data aggregated at the zip code level.

Los Angeles “Hot Spots” – December

Source: Analysis by Federal Reserve Board of Governors, First American LoanPerformance Data, December 2007. Data represent a sample of subprime loans, approximating 70 percent of subprime loan volume. Data aggregated at the zip code level.

Los Angeles “Hot Spots” – February

Source: Analysis by Federal Reserve Board of Governors, First American LoanPerformance Data, February 2008. Data represent a sample of subprime loans, approximating 70 percent of subprime loan volume. Data aggregated at the zip code level.

Inland Empire “Hot Spots” – December

Source: Analysis by Federal Reserve Board of Governors, First American LoanPerformance Data, December 2007. Data represent a sample of subprime loans, approximating 70 percent of subprime loan volume. Data aggregated at the zip code level.

Inland Empire “Hot Spots” – February

Source: Analysis by Federal Reserve Board of Governors, First American LoanPerformance Data, February 2008. Data represent a sample of subprime loans, approximating 70 percent of subprime loan volume. Data aggregated at the zip code level.

Foreclosures likely to continue: large percent of remaining subprime loans are past due

Source: Analysis by Federal Reserve Board of Governors, First American LoanPerformance Data, February 2008. Data represent a sample of subprime loans, approximating 70 percent of subprime loan volume. Data aggregated at the zip code level.

FRBSF’s Outreach
2007 Activities: Raise awareness of issue and build local capacity to prevent foreclosures
Organized series of summits in 2Q 2007 to educate constituents, raise awareness, and share best practices Helped create new, or support existing local taskforces and coalitions on foreclosure prevention and borrower outreach Provided training to lenders and nonprofits and promoted communication through servicer/counselor convenings

Ongoing FRBSF Activities
Increase reach and scope of foreclosure activities
Continue efforts to expand capacity to prevent additional foreclosures
Efforts to streamline and improve effectiveness of borrower outreach fairs and loan modifications

Address the negative impact of foreclosures and REO properties on neighborhoods
Stabilizing Communities Symposium

Develop “best practices” toolkits and disseminate information through web based publications and videos


				
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