BEN SULLIVAN Staff Reporter
Mirroring statewide statistics, real estate foreclosures in Los Angeles County jumped nearly 20 percent last year, with the bulk of those foreclosures on homes, according to a study released last week.
Some lenders and realtors say the rise is the last remnant of California’s recession and a harbinger of a rebounding real estate market.
Industry analysts, on the other hand, warn that it reflects increasingly loose lending criteria being used by financial institutions that are grappling for market share in a hyper-competitive market.
“Unfortunately, there’s no one thing that you can point to and say, ‘This is why the number went up,'” said Doug McEachern, a partner at Deloitte & Touche LLP who oversees the consultancy’s Western real estate division.
According to the study, conducted by Anaheim data tracking company Experian, foreclosures in L.A. County rose 19.3 percent, from 27,831 in 1995 to 33,194 in 1996. Statewide, the increase was 19 percent, from 77,420 in 1995 to 92,120 foreclosures last year. The average mortgage foreclosed on in L.A. County during last year was $167,000.
“I think it’s the tail end of the recession,” said Babette Heimbuch, president and chief executive of FirstFed Financial. “These are people who back in the early 1990s would never have considered defaulting. They’ve hung on and tried to make their payments. But prices didn’t bounce back, and maybe they ran out of their savings, or maybe they had to move or have been re-employed at a lower income. But whatever, they had to admit they couldn’t hang in there.”
Since 1991, foreclosures in L.A. and statewide had been increasing at double-digit. But then in 1995, the L.A. figure stabilized, with just a 0.4 percent increase, reflecting a gradual pick-up in the regional economy, said Experian analyst Nima Nattagh.
Property sale prices, however, remained relatively stagnant, he said. “If a homeowner doesn’t have equity in his house, he’s more likely to default,” Nattagh said.
Still, the general economic pick-up did lead to an increase in L.A.-area buyer demand, according to Fred Sands, founder of Fred Sands Realty in Brentwood.
“We’re seeing a shortage of inventory, and good-quality homes are selling almost as quickly as they come on the market,” Sands said. As a result, lenders are less reluctant to foreclose on properties, knowing they can resell them with relative ease. “Rather than drag things out, lenders are being more vigorous and less work-out friendly,” Sands said.
Contributing to the rise in foreclosures is increased competition among lenders, said Deloitte & Touche’s McEachern. With financial institutions increasingly approving mortgages for people with sub-prime quality credit, “you would expect to see a higher default rate,” he said.