Risky subprime loans account for at least a fifth of all mortgages issued in nearly 30 Los Angeles County ZIP codes over the past two years, and for at least 10 percent of loans in another 107 neighborhoods, according to a Business Journal analysis of house and condo sales data.

The review showed that the loans, increasingly being defaulted upon by borrowers, are concentrated in lower income areas of South Central Los Angeles, Latino neighborhoods such as Pacoima and high desert communities such as Palmdale and Lancaster. In one Willowbrook neighborhood, an area near Watts, the loans totaled at least 27 percent of all mortgages. (The 27 percent figure and all similar numbers are conservative because not all subprime loans could be counted in the review.)

The fear is that a high concentration of subprime loans in any neighborhood may lead to a high incidence of defaults, which likely would lead to drooping home prices in that neighborhood. What’s more, a crackdown on subprime lending means the pool of buyers for such homes would likely dry up.

If home owners are unable to move up, the deleterious effect could spread to higher-income neighborhoods.

Christopher Thornberg, a former UCLA economist who has long predicted that Los Angeles was in the midst of an unsustainable run-up in real estate prices, said the figures show that a price correction could be widespread.

“Prices in Watts have very little to do with those in Beverly Hills,” said Thornberg, now principal at Beacon Economics, an economic consultancy. “What this could mean, though, is that if a high amount of (subprime) loans facilitates a price dive in Watts, this could stir a price drop in places like Venice, Mar Vista, Palms, the Valley and so on. And you could see big price volatility in the middle, where most buyers are.”

13 percent countywide

In fact, the review turned up surprising numbers of subprime loans in working class and middle-income neighborhoods across the county.

ZIP codes with at least 10 percent subprime penetration amount to just about half of all residential neighborhoods in the county, spanning from Whittier to Pasadena to Woodland Hills. At least 13 percent of all loans issued countywide for the last two years fall into the subprime category.

The loans are generally issued to buyers with spotty credit history, an inability to document their income or little money to make a down payment. Subprime loans have traditionally accounted for only about 5 percent of all mortgages, but that figure is increasing.

Already, Los Angeles County defaults more than doubled in the fourth quarter of 2006, with 7,445 defaults compared to 3,480 a year earlier, according to DataQuick Information Systems.

“It’s definitely going to be a ripple where many people fall a level down in terms of the value of their homes and in terms of their economic status,” said Stan Ross, chairman of the Lusk Center for Real Estate at USC. “The whole market can eventually be dampened by this.”

The Business Journal analysis was conducted on 2005 and 2006 data provided by HomeData Corp., a Melville, N.Y. company that tracks housing data nationwide. It captured loans issued by prominent local subprime lenders, such as Fremont Investments & Loans, WMC Mortgage and New Century Financial Corp., the failing Orange County lender that has seen a surge of defaults.