by Calculated Risk on 6/01/2010 12:58:00 PM

From Carolyn Said at the San Francisco Chronicle: Foreclosures shifting to affluent ZIP codes

Foreclosures are going upscale across the Bay Area. ... Even more striking is the growth of mortgage defaults - the first step in the foreclosure process - in affluent ZIP codes.

While the high-end numbers are far shy of the massive wave of lower-priced foreclosures, the growth reflects a significant shift in the foreclosure landscape ... Mortgage distress has moved upstream in part because of economic conditions ... Also in play [are] option ARM (adjustable rate mortgage) that's just beginning to cause problems.

Option ARMs were very popular in the mid-to-high end bubble areas.

Previous Chronicle analyses have found that option ARMs were heavily used in the Bay Area, accounting for 20 percent of all homes bought or refinanced here from 2004 to 2008. They were used for homes averaging about $823,000 in value.

Although many of these loans already recast - or were refinanced - there are still quite a few that will recast over the next couple of years. Since Option ARMs were frequently used as "affordability products", many homeowners will not be able to afford the higher payments when the loans recast.

Carolyn Said also notes that banks prefer short sales to foreclosures in the mid-to-high end areas. So just tracking foreclosures doesn't tell the entire story. I'm seeing more and more high end homes listed as short sales ... and this means there are more distressed sales coming in certain mid-to-high end bubble areas and also more price declines.