<a href="http://www.ocregister.com/articles/foreclosures-percent-county-2513340-year-kyser">Foreclosures plummet; is housing's bottom near?</a>
<strong>No</strong>
Home foreclosures dropped dramatically and unexpectedly in Orange County this spring, with some economists speculating the most toxic home loans have worked their way through the system and the housing market may bottom by year end.
However, economists also caution that unemployment remains high and could climb into next year. As people lose their jobs, some also lose their homes.
Foreclosures plummeted in roughly 75 percent of ZIPs tracked by DataQuick in the three months ended in June vs. the same period a year ago. And some of the most heavily impacted central county areas saw declines of 35 to 65 percent.
Jack Kyser, founding economist of The Kyser Center for Economic Research in Los Angeles, said most of the "really rotten loans" have already been shaken out of the system.
For the past three months, foreclosures averaged 635 a month. Kyser doubts they will return to the peak 1,300 to 1,400 a month the county saw in summer 2008.
With housing sales up and prices moving sideways or falling at a slower pace, Kyser is optimistic the worst is over.
"By the end of the year, people will be saying we have hit bottom," he said.
Whatever the reasons, foreclosures plummeted across most of the county. Banks seized 42 properties in the second quarter in Santa Ana's 92701, which had the county's highest ratio of foreclosures to existing homes at 8 per 1,000. Yet the 42 foreclosures represented a 65 percent drop from a year ago.
More examples: Buena Park's 90620 saw foreclosures drop 57 percent to 29 homes seized. In Costa Mesa's 92627 they dropped 37 percent to 22, and in Ladera Ranch's 92694, foreclosures dropped 40 percent to 30.
Yet experts say government intervention has played a role in the declines. The question is whether foreclosures are being prevented or merely delayed by state and federal programs.
Kyser said foreclosures fell early this year partly because of anticipation over President Barack Obama's foreclosure prevention plan, which was announced in February and expanded in April to include second mortgages.
The Obama plan focuses on making mortgages more affordable for struggling homeowners by encouraging lenders and loan servicers to lower the interest rate. Servicers are eligible for cash payments for aiding homeowners.
But the program is having a limited impact. Back in February, Obama administration officials said they hoped to help up to 4 million homeowners. On Tuesday, they said just 200,000 trial loan modifications are under way.
Critics have said the plan does not address the central issue that too many borrowers owe more than their home is worth, a big psychological barrier to making payments. Also, it's too complicated, doesn't go far enough to tackle second mortgages, and doesn't free servicers from contracts that limit the modifications they can do, critics say.
Government officials met with heads of companies last week to discuss how to improve results. The Administration's goal now is to reach half a million trial modifications begun by November 1.
To nudge lenders and servicers, the administration will begin publicly reporting how many loan modifications companies are doing. The first report will be released by August 4.
In any case, with the plan something of a disappointment, foreclosures will trend back up in Orange County, economist Kyser said. While he doesn't expect them to return to highs of last summer, they might return to the range of 1,000 per month or so. That's above the peak of 674 foreclosures in October 1996, during the housing downturn of the '90s.
Mark Boud, owner of Real Estate Economics in Irvine, also predicts foreclosures will rise to the range of 1,000 per month ? and that may be the total for July. But he sees them flat and then dipping slowly in later months.
He said foreclosures fell in spring partly as a residual impact from a state law enacted in September 2008. The law requires lenders to attempt to talk to borrowers at least 30 days before filing a notice of default and discuss options to avoid foreclosure. It affects loans made at the tail end of the housing boom.
When the rule began, NODs dropped immediately but rebounded within three months. Foreclosures also dropped and rebounded somewhat by January. But they trended downward for the next three months, bottoming at 482 in April, when Obama announced the expansion of his foreclosure relief effort. Since then they have begun climbing again, hitting 833 in June.
Boud dismisses talk of a second wave of foreclosures coming from the end of low introductory payments on adjustable-rate mortgages. Like economist Kyser, Boud says those most likely to default have already done it, including speculators who bet on multiple properties.
He said the bottom for housing sales in Orange County was last year and for prices was in January. He said prices will "ride the bottom" this year, rise perhaps 1 percent next year and maybe 2.5 percent in 2011.
"We think 2011 will be a pretty healthy year," Boud said.
Boud may be right for the county as a whole, but the county's pricier cities are still showing signs of trouble, with slower sales and rising foreclosures.
Despite the Obama plan and all the political pressure on lenders to do loan modifications, foreclosures still rose in 14 ZIPs in the second quarter. These were some of the priciest ZIPs in the county, including ones in Yorba Linda, Corona Del Mar, Huntington Beach, Irvine, San Clemente, and Trabuco Canyon.
To be sure the totals were sometimes small: foreclosures in Corona Del Mar's 92625 rose 300 percent but only totaled 4 properties.
There is one final cloud over the county's housing recovery: an unemployment rate that hit 9.2 percent in June. Economist Kyser expects the rate to hit 9.7 percent next year.
While that's a big number, both Kyser and Boud say the lack of new construction combined with an increase in sales will be the deciding factors for housing. Boud said some people who lose their jobs will find a way to hold onto their homes.
"We got rid of most of the speculators, investors and unqualified buyers," Boud said. "Now we are cutting into the bone"
Contact the writer: 714-796-6726 or mapadilla@ocregister.com
