Prime Borrowers become new focus of foreclosure crisis

Home Front: Prime borrowers become new focus of foreclosure crisis

By Jim Wasserman jwasserman@sacbee.com

http://www.sacbee.com/business/story/2127628.html


There once was a time in Sacramento when well-educated people had two good jobs per household, a safe fixed-rate mortgage, and easy assurances that the mortgage crisis was someone else's problem.
Not so much now in 2009.
Suddenly, these are the new people in trouble as 11.6 percent unemployment and 14 percent wage cuts across state government take a toll. Their prime fixed-rate 30-year loans – the benchmark of responsibility and reliability, the sign of a college degree with the same payment every month year in and out – are buckling under pressures of a nasty economy.
Sacramento-area lenders, loan counselors and credit attorneys say they've seen it for months as thousands get pink slips, which ripples outward into lost earnings for area business owners. Thursday, the Mortgage Bankers Association spotlighted the trend nationally, saying "prime fixed-rate loans account now for one in three foreclosure starts."
The old subprime adjustable-rate loan problem that started the crisis in 2007 continued to wane in 43 states in April, May and June, the MBA said. But the new prime fixed-rate problem rose in 41 states, including California.
"This is further confirmation of what we've seen in the past year, one that's increasingly driven by fundamental issues in the economy," MBA Chief Economist Jay Brinkmann told reporters during a conference call. Brinkmann has long said that early-recession layoffs hit renters first, many in construction. Then it hit manufacturing-dependent homeowners. Now, it's moved up the food chain to the professions with good educations and prime-rate "safe" loans.
The MBA doesn't provide region-specific numbers. But California has 3.3 million prime fixed-rate loans. They are 56 percent of mortgages in California. In the second quarter, 4.64 percent were delinquent to some degree. That's up from 3.95 percent the first quarter, and more than double the delinquencies of the same time in 2008. Nationally, it's worse – at 5.23 percent.
As a percentage, this may not sound like much. But it's adding to the pileup of two years of foreclosures – 43,000 in the capital region so far. It's contributing to falling values, even in higher-value neighborhoods financed with prime mortgages. Falling values block refinancing options and lead to more foreclosures, widening the circle of economic distress.
Brinkmann said delinquencies related to job losses put lenders at a tremendous disadvantage for solutions. Many people, even with prime loans, have financed homes to the edge of their two incomes. When one of those vital jobs is gone it's difficult, he said, to restructure a mortgage.
The economist said he expects unemployment nationally to peak in mid-2010 and prime delinquencies with it. Sacramento may have longer to contend with prime pressures as state government follows the other pillar of the regional economy – real estate and construction – into an apparent prolonged contraction.
Caution on Curtis Park Village
Sacramento's Land Park Neighborhood Association is passing for now on whether to endorse plans for nearby Curtis Park Village. An hourlong debate Wednesday on the 500-home project in the Western Pacific Railyard produced no consensus among 15 board members, said Jon Jensen, chair of the group's land-use committee.
The association has received a pitch from Sacramento developer Paul Petrovich. Also lobbying is the Sierra Curtis Neighborhood Association. Its leaders think the design is too suburban and car-oriented.
"We have not come to a decision," said Jensen. "We're working through the democratic process. We had a spirited debate and hope to reach some kind of resolution in the near future." He said a five-member board committee will make a recommendation. The 72-acre infill project goes before City Hall next month.
Theater joins home raffle rush
Home raffles are still the rage. Now it's the Sacramento Theatre Co. raffling a condominium built by JTS Communities at Regatta at the Rivers in West Sacramento.
The fundraiser features 100,000 $25 tickets for sale this Monday through next Jan. 31. The winner gets a two-bedroom condo, and the theater gets profits to fund education programs for students. The builder will be reimbursed for materials to build the condo.
Tickets will be sold at the box office. Check the theater Web site early next week for details, said director of development Karen Leslie.