Zooming property foreclosures undercut housing industry hopes: seizures so far this year up...

Zooming property foreclosures undercut housing industry hopes

Sunny reports earlier this month that the Los Angeles housing market is finally beginning to rebound were partially eclipsed last week by new statistics that show local property foreclosures are soaring.

Lenders seized

1,593 properties, worth an aggregate $452.4 million, in Los Angeles County during the first four months of this year, according to TRW Real Estate Services. That represents a 136 percent jump in the number of local properties seized and a 403 percent leap in the aggregate value, compared with the same period a year ago.

"We're seeing a whole new area of foreclosures right now," explained Lola Levoy, president of Beverly Hills Escrow. "We always get foreclosures on commercial properties and flashy high-end homes, but this is different. We're now seeing white-collar yuppy homes being foreclosed on - people who were making $250,000 a year and suddenly found themselves out of work for six or eight months, or longer."

And the gray clouds are likely to darken.

Notices of default, which foreshadow property foreclosures, continue to be filed at above-normal levels in Los Angeles County. About 90 notices of default are being filed each day in L.A. County, reported Judy Frumkin, owner of Redloc Info Systems Inc., a local real estate information company.

That represents a significant improvement from the 150 notices that were being filed daily here late last year. But the pace still is noticeably higher than L.A. County's "normal" rate of about 70 such filings a day.

Only about 50 notices of default were being filed in L.A. County on an average a day during the go-go year of 1988.

"There was an abrupt and dramatic rise in notices of default on single-family residences beginning late last year," said Jonathan Gray, a banking analyst with Sanford C. Bernstein & Co., New York-based securities firm. "It takes about three months for such notices to go into foreclosure. So that's what we're seeing now. And we'll continue to see those (foreclosure) numbers rising sharply for at least several more months."

The foreclosure explosion seems to be a regionwide phenomenon, rather than a local one. In San Diego County, for example, 133 properties worth $45.5 million were seized by lenders in April, compared with just 67 properties worth $5 million in April 1990.

Riverside County is expected to be crushed by foreclosures in the months to come. About 45 notices of default are now being filed each day in that county, four times the pace of filings in 1988.

"Riverside homes are a lot cheaper," Frumkin explained. "People got into those houses with VA or FHA loans, with no money down. So when they lose their jobs and don't have any equity invested, they just walk away and let the house go back to the lender."

The result is that lenders are ending up with burgeoning portfolios of Southland homes.

Beverly Hills-based Great Western Financial Corp., for example, recently reported that its nonperforming California residential mortgages rose 43 percent in the first quarter of 1991, compared with the previous quarter. That lender's bad California home loans jumped from $165 million to $236 million in just three months.

Sam Lyons, senior vice president of mortgage banking for Great Western, downplayed the recent surge in local home loan delinquencies and foreclosures, and insisted that Great Western remains bullish on the California housing market.

"We don't detect any strong underlying weakness in the California economy," he said. "Sure, people don't like the congestion, high prices and crime here. But the jobs are still in Los Angeles, and jobs ultimately determine where people will move."

Recent trends indicate, however, that L.A.'s job horizon is also filling with dark clouds.

Los Angeles County's unemployment rate rose to 7.2 percent last month, up from 6.9 percent in March - and a far cry from April 1990's 5.4 percent jobless rate.

"The trend is not favorable," conceded Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles County. "We're forecasting the unemployment rate for L.A. County is easily going to average 7.5 percent this year."

That would be considerably higher than any monthly unemployment figure posted so far this year, which means the jobless rate is likely to rise significantly in coming months.

"The L.A. economy is going to remain in a recession until at least the end of this year," Kyser predicted. "And 1992's recovery will not be a vigorous one."

The culprit appears to be widespread and continuing consolidation of the construction, aerospace and durable goods manufacturing sectors of the local economy.

Also, sizable layoffs are taking place in state government offices around the Southland, as state legislators grapple with a huge budget deficit.

The foreclosure explosion could worsen further in the months to come, as laid-off workers exhaust their unemployment benefits.

The Southland's economic outlook, while somewhat bleak, is not expected to reach the depths of other depressed U.S. regions, sources said. But that will not preclude severe repercussions in the local real estate market.

"Southern California's economy doesn't have to turn into a Texas or New England to give its real estate some very serious problems over the next 12 to 18 months, which we believe will happen," said Gerard Cassidy, senior vice president of equity research at the New York investment house of Tucker, Anthony Inc. "Loans were made to developers assuming the area's fast rate of growth would continue, and now foreclosures are starting to mount."

Making matters worse, anecdotal evidence began surfacing last week that the surge in local home sales following the U.S. military victory in the Persian Gulf may have been an aberration, rather than the beginning of any long-term recovery.

"There was a nice little upswing in February, March and April, but it's clearly flattened out since then," said William Stevenson, president of the Santa Monica-based real estate marketing firm Kennedy-Wilson Inc. "This state has some serious problems. And as long as they remain, real estate here is going to reflect it."

One bright spot continues to be low-priced entry-level homes in some pockets of Los Angeles County. Sales in the Antelope and San Gabriel valleys, for example, have been particularly strong lately, reported the Meyers Group, another local real estate information company.

"Sales are also up in the San Fernando Valley, but so are listings," explained Steve Smiley, Meyers Group manager. "People have heard the market is picking up again, and are putting their houses back on the market."

But Levoy of Beverly Hills Escrow warned that most of those hopeful home-sellers will most likely be disappointed.

"The minute we hear a little good news, we try to get ecstatic about it," Levoy sighed. "People (home-sellers and realtors) tell you all this rose-colored-glasses stuff because they want it to be true. But go to any shopping mall and watch how many people walk out with packages. Go to a bank and watch how many people put money in compared to how many take money out. There are parts of this country that are coming out of the recession, but Los Angeles isn't one of them."

Not yet.

Table : L.A. County property foreclosures soar

                                   Value of
                   No. of         foreclosures
Period             foreclosures    (millions)
April 1991            486           $186.5
March 1991            453            101.7
April 1990            155             25.2
Jan.-April 1991      1,593           452.4
Jan.-April 1990       676             89.9

Source: TRW Real Estate Services