Foreclosures Rise in Sonoma County

June 17th, 2009 | Tags: Foreclosure

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Sonoma County is flooded with foreclosed properties. The subprime crisis has inundated the region with homes that are occupied by distressed owners. The problem had started with subprime borrowers who were not eligible for mortgage. But now it has spread to even prime borrowers with good credit-worthiness.

These borrowers had availed of Alt-A loans, Very similar to the subprime loans, these too, offered very low initial payments. Many availed of them and bought homes that they could not otherwise afford. Now when the period has ended, the borrowers have discovered that they have to pay at least 50 per cent or more and that is something they just cannot afford.

Hans Bruhner, managing partner of First Priority Financial, a Forestville mortgage company, said the loans were projected to the consumer as being affordable when actually they were not. The administration should have realized that it was a disaster in the making.

The number of Alt-A loans in Sonoma stands at 18,000. In fact, they comprise 18 per cent of the total 102,000 mortgages in the county. This is triple the number in the US, if statistics of First American CoreLogic is anything to go by. In the next three years, a large chunk of Alt-A borrowers will witness a jump in their payments. This will peak in 2011.

The consequences will be disastrous for the real estate market, say experts. As job losses mount and home prices fall, many of these borrowers will be saddled with foreclosed properties, simply because their payments have seen a phenomenal jump and they cannot afford to pay that. The first crisis had come with the subprime borrowers defaulting on loans – a phenomenon that sent foreclosures to record levels. About 7,200 borrowers had stopped making payments on their mortgage payments in 2007 and 2008. Experts say that as the number of Alt A loan defaulters increase, there could be another jump in foreclosures.

In Sonoma county home prices had peaked to $619,000 three years ago and now the median price has plunged by 49 per cent. It seems that borrowers owe more than what their homes are worth. Already nearly one in five residents with these loans is lagging behind on mortgage payments. The numbers would only increase as more people lose jobs. In Sonoma, ALT-A loans had become a popular tool for buying and refinancing homes. Economists say that home prices will not hit bottom for a year. Subsequently more people would avail of Alt-A loans and slip into the risk zone.