California home mortgage defaults at record pace

And the subhead in the Los Angeles Times’ online version of the story even uses the word “recession” in describing the problem:

Foreclosures soared to 17,408 for the three months ended June 30, an increase of 799 percent from the same period last year. The current rate handily exceeds the previous foreclosure peak set in 1996, when the state was in the final throes of a six-year slump.

“The economy will bend further under the weight of the mounting housing and mortgage problems, but it will not break,” said Mark Zandi, chief economist at Moody’s Economy.com.

That’s what passes for optimism these days. Others are more downbeat.

“All the artificial stimulus housing gave the economy is going to go away,” said Rich Toscano, a financial advisor with Pacific Capital Associates in San Diego who runs the popular Piggington.com real estate website. “There will be individual pain for people who made the wrong decisions. We all may end up in a recession.”

The good news, as seen by Toscano: “I don’t envision a ‘Grapes of Wrath’ scenario where we all have to pile in the family car and look for harvesting work.” ...

Most analysts say the housing market won't stabilize until 2008 or 2009. The so-called soft landing that was much talked about last year is rarely mentioned anymore.

The rising foreclosure rate is tied to stricter lending standards and weakening home values. With housing prices flat or falling, lenders are less willing to refinance loans — especially to borrowers with shaky credit who are most likely to miss payments. ...

One reason foreclosures are rising faster than defaults is that strapped owners are having a harder time saving themselves.

As recently as a year ago, most homeowners who had slipped behind in their payments found a way to get current again. Nearly 9 out of 10 defaulting borrowers got out of trouble by selling their house or refinancing, according to DataQuick.

Fewer than 6 out of 10 are able to do so now. “People have stretched their finances to the breaking point,” said DataQuick analyst John Karevoll.

There’s already a year’s supply of houses on the market in San Bernardino and Riverside counties, up from a three-week supply at the height of the boom, said Ron Barnard, owner of Home Center Realty in Norco. Many are foreclosures that banks are trying to unload.

Will this be an “as California goes, so goes the nation,” scenario? As I’ve posted in the past about this issue, even states like Texas which look good on paper aren’t so solid.

In the sense of not liking or wanting a recession, it gives me little comfort to have my analysis confirmed by a major seven-day daily newspaper. But, in the sense of confirming that I’m not Chicken Little, it shows indeed that I’m on the right analytical track.