Foreclosure/LSP/mike1st/22"/mark2nd

By LISA STEEN PROCTOR

Staff Reporter

An avalanche of L.A.-area properties is landing in the portfolios of mortgage lenders, leaving lenders with a record number of homes to sell.

The number of foreclosures in Los Angeles County is 16 times its level in 1990 growing from about 1,600 properties to more than 26,000 in 1996, according to Acxiom/DataQuick, a real estate research service.

So how do mortgage lenders unload this glut of foreclosured properties?

One way would be to just sell off the bad loans before they end up in foreclosure.

Chatsworth-based Great Western Bank, for instance, sold off many of its non-performing loans this year to a consortium of savings banks, said Mike Fehrenbacher, Great Western's vice president of single-family REOs, or "real estate owned," the industry term for foreclosed properties.

"Levels (of properties in Great Western's REO portfolio) would have remained high, but because of the sale, levels are about half of what they were in '96," he said.

Great Western's REO operation now consists of only 18 employees, and the thrift uses two outside companies to handle the sales of its Southern California foreclosure properties Prudential Asset Recovery and Real Estate Services Network. These two firms concentrate on all aspects of the sales process from choosing a broker to evaluating offers.

Fehrenbacher said an increasing number of mortgage lenders are eliminating or drastically downsizing their in-house REO operations. "This has been the trend for the last few years, as (lenders) look for ways to reduce costs and be more efficient," said Fehrenbacher. "I wouldn't say everyone does (outsource REO sales efforts), but probably half do."

The entire foreclosure process can be lengthy and eat up lots of resources, says Babette Heimbuch, president and CEO of Santa Monica-based First Federal Bank of California.

The bank, nonetheless, handles foreclosures in-house because its REO department has been effective, said Heimbuch. She said the department has a track record of selling REOs quickly and for close to the appraised value. "We have developed a team that's very good at it," said Heimbuch. "We made a decision that we're in the business of selling REOs."

Heimbuch also said that it's easier for First Fed to handle REOs in-house given its concentration of properties in one region. "If I was Home Savings, with REOs up and down the state, I might not handle them in-house," she said. "My REOs are all in Southern California so we can be effective with what we've got."

Handling REOs in-house can be especially troublesome if the homeowner refuses to leave. "Sometimes it takes 90 days or six months to a year to get them out of the house," said Heimbuch, who noted that about 75 percent of the bank's foreclosures require eviction proceedings. This is typically on top of the six months the homeowner already has lived in the house mortgage-free, she said.

Even after the occupant has been successfully evicted, the property then often needs major repairs. "A lot of the houses you may get back in bad condition because the debtor either didn't have the money to keep up the property or an angry debtor has defaced the property," said Heimbuch. "We've had houses with nothing left inside no sinks, no toilets."

Once any necessary improvements are made, REO properties are listed with a broker and often sold at less than what an individual might sell it for, said Heimbuch. "Banks are generally more-motivated sellers. They're more realistic about the sales price," she said. "Individuals have a little more emotional attachment."

Michael Quinn, senior vice president at Federal National Mortgage Association (Fannie Mae), the nation's largest source of home mortgage funds, disagreed. "We sell a house just like you would. We're trying to maximize proceeds, just as you would be," he said.

Last year, Fannie Mae foreclosed on 11,000 properties in California, 40 percent of which were in L.A. County. Following California in number of foreclosures for the government-sponsored corporation was Texas, with a mere 1,000.

Quinn says the worst is over. "The percentage of loan delinquencies are down, the inventory of loans in foreclosure is down and from the number of homes we have, there's good traffic and sales," he said.

On this point, Quinn and Heimbuch agreed. "I don't think (the high number of foreclosures) will last past '97, but it won't improve next month," said Heimbuch. "It will get better towards the end of '97, and in '98, (reporters) will do articles on how much better it is since '97."

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