More people facing foreclosure as recession hits home Mortgage defaults are on the rise

November 08, 1992|By Walter Hamilton and Ed Van Herik | Walter Hamilton and Ed Van Herik,Los Angeles Daily News

LOS ANGELES -- Ed and Mardi Clahan invested $100,000 renovating their salmon-colored Van Nuys house over the past 14 years. But after losing their jobs in the recession, the Clahans this year fell behind on their mortgage.

"A month ago, I jumped in the pool because it was a hot night and I thought, 'This could be the last time I'm in this pool,' " Mr. Clahan said. "I don't know what I'd do if I lost this house." Van Nuys is a community in Los Angeles County.

With Mrs. Clahan having found another job as a secretary, the Clahans feel they have a good chance of getting back on their feet and avoiding foreclosure. But for many others, time is running out.

The mortgage delinquency rate at California financial institutions has doubled over the past year, according to the West Chester, Pa.-based consulting firm Regional Financial Associates Inc.

The delinquency rate at California banks was 1.64 percent for the first quarter that ended March 30, up from 0.83 percent for the like period a year earlier. The national average edged up to 1.86 percent from 1.7 percent, according to the firm. Foreclosures shot up 95 percent in Los Angeles County in the second quarter of this year, compared with the like period a year earlier, according to the Real Estate Research Council of Southern California. Roughly 80 percent of the foreclosures were on homes, said TRW REDI Property Data.

'A lot of people are hurting'

"A lot of people are hurting very badly," said David Schumacher, an appraiser and author in the Los Angeles County city of Hermosa Beach.

Delinquency is the first step toward foreclosure, a process in which a lender seizes a home if mortgage payments cannot be made. A homeowner is in delinquency after missing a first mortgage payment. Foreclosure proceedings usually begin after three missed payments.

Though losing a home is an emotionally grueling experience, the delinquency period preceding a foreclosure often is equally wrenching, according to homeowners and experts.

A house is lost in a foreclosure, but much of the worrying and uncertainty about what will happen can end when the house is lost. The stress of a delinquency can be sharper because the worry is just starting.

Homeowners often add to their indebtedness during delinquency by neglecting other bills, overextending credit cards depleting savings.

"I would wake up in the middle of the night crying because I'd have this on my mind," Mrs. Clahan said. "We'd try to avoid answering the phone and making up stories [to creditors]."

While delinquencies usually rise during a recession, analysts say many of today's cases are tied to the boom mentality of the late 1980s. Many people refinanced their homes to pull out value or stretched themselves to buy bigger homes.

Today, a large number of those homeowners, squeezed by a slack economy and drooping real estate market, are falling into default.

"It scares people to death," said John Scardino, a suburban Tarzana lawyer who renegotiates loans for strapped homeowners. "Their home, their harbor, is no longer safe."

Analysts say owners respond differently when faced with the prospect of losing their homes. They may deny the problem; they may file for bankruptcy to forestall foreclosure; they may try to negotiate a deal with their lender; or they may just let the house go.

Some people accept parting with their homes but then cannot find buyers in the state's weak real estate market.

Jacqui Moss, a costume jewelry sales representative, tried to sell her suburban West Hills home when the recession dug into her income. However, Ms. Moss now has acknowledged that foreclosure is inevitable because she can't pay the bills and hasn't been able to sell the house.

Ms. Moss said that during delinquency her fear of losing her home was compounded by her guilt at being unable to pay her debts. Ms. Moss also tortured herself with the belief that her inability to pay the mortgage reflected on her value as a person.

"My whole self-worth as a person was in it," Ms. Moss said. "When I realized I couldn't make another payment I was devastated."

In some cases, Mr. Scardino has been able to find buyers for properties worth less than what's owed on them, and then talk

the bank into writing off the loss.

Trying to avoid foreclosures

Bankers say they have been more willing in the recession to work with homeowners to restructure loans so that a foreclosure can be avoided. For example, some are willing to stall foreclosure so that a debtor can sell the home.

Foreclosing on properties can have little benefit for financial institutions since they also can't unload the properties in the recession.

"We're in the business to help people finance homes and stay in their homes," said Paul Mullings, president of First Interstate Mortgage Co., an arm of Los Angeles-based First Interstate Bank of California. "We're not in business to own real estate."

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