by Calculated Risk on 4/24/2006 10:49:00 AM

From Foreclosures.com: Mortgage Defaults on the Rise in West and Southwest

... reported today that foreclosure activity in the first quarter of 2006 increased significantly from the fourth quarter of 2005 in several western and southwestern housing markets.

"The biggest increases were in major urban centers around the West," said ForeclosureS.com president Alexis McGee. "For example, Los Angeles County recorded 6,314 pre-foreclosure filings and foreclosures through March, up from 4,911 in Q4 of 2005, while in San Diego the numbers jumped from 1,565 in Q4 of 2005 to 2,241 in Q1 of 2006."

She went on to say that such increases were coincident with cooling markets in previously overheated areas, and with the steady rise in interest rates.
...
She added that rampant speculation in some markets, along with a slowdown in price appreciation would lead to an increase in delinquencies and foreclosures.

"In Las Vegas, this appears to be already happening. Foreclosure activity jumped to 3,246 in Q1 of 2006 from 1,480 in Q4 of 2005. Speculators who came late to the party are being washed out of the market."

She pointed to widespread concern over the number of interest only and high negative amortization loans that had been issued by lenders in recent years as homebuyers sought to qualify for ever more expensive homes during the coastal markets' price boom of the last half decade.

"In San Diego for example," said Ms. McGee, "more than half of home purchases in 2004 and 2005 were financed with these exotic mortgage products. When these loans reset to true market rates the payment shock can be severe and put many households in financial distress."

She referred to a recent study by Dr. Christopher Cagan of First American Real Estate Solutions. Cagan stated that an option ARM with payments of $800 per month could jump to $3000 per month when reset to market rates. "That's a recipe for financial disaster," said Ms. McGee.

As DataQuick recently noted: "Foreclosure activity is edging up from its bottom, but is still low."