Orange County Foreclosures

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Banks sent out 632 notices of default last month to Orange County homeowners behind on their home loan payments, up 6% from January and 75% from February 2006, said market tracker RealtyTrac.

Defaults, which banks send out if a borrower misses at least three monthly payments, are rising quickly but they remain below levels seen in the early 1990s.

One of the big parts of the puzzle is the delay from the time when the home owner gets in trouble (can’t make their mortgage payment) and when the foreclosure process starts, which is usually 120 days. Much of the foreclosure activity we are currently seeing began back in November of 2006, which means that we won’t see a peak in this activity until Fall of 2007. The reason? There are over $1.5 trillion worth of home loans set to reset this year alone. Once a loan resets there will be at least 120 days – but more likely 180 days as borrowers struggle to make the first two payments at the new rate and give up – and then foreclosure proceedings start.

The timing will need to allow (a) more loans to become unaffordable (b) payments to stop being made (c) foreclosure proceedings to start. With that logic we should see foreclosure activity spike at the END of this year. Even though people are saying its currently below historical averages the dramatic rise is so scary because we are so early in the process. It can only get uglier.