Foreclosures leap to record levels as homes take big hit.

Lenders took more than 1,000 properties in June

Every working day in June about 50 property owners -- largely homeowners -- had their real estate foreclosed upon in Los Angeles County, a near-record postwar rate.

For the month, there were 1,135 foreclosures, the first time in this business cycle that more than 1,000 properties were taken back by lenders in a single month.

The number of properties foreclosed was more than double that of last June, and nearly sevenfold that of June two years ago, a surge noted with some trepidation in local lending circles.

"There is no question that what you are seeing is being noted by lenders throughout Southern California," said Sam Lyons, senior vice president at Chatsworth-based Great Western Bank. "The economic climate in Southern California and the commensurate reduction in jobs -- you are now seeing visible evidence of that."

Others blamed plunging property values for the foreclosure rise. "You have foreclosures when you have no equity in the property," said Michael Carney, professor of finance and real estate at Cal Poly Pomona. "Even if a homeowner is unemployed, if their house is worth more than the (home) loan, they can sell the house and pay off the loan. When the house is worth less than the loan, they walk away."

June was also a monthly foreclosure record in dollar volume; more than $347 million worth of real estate loans were called in, the first time the $300 million milestone was passed, according to statistics assembled by TRW-REDI Property Data, a Riverside-based real estate information outfit.

TRW-REDI does not break down what portion of the foreclosures are single-family homes or commercial buildings. But the average dollar amount per foreclosure -- $305,991 -- strongly suggests that ordinary homes and condos made up the majority of foreclosures, said an analyst at TRW-REDI.

According to government data, there are about 1.23 million owner-occupied housing units in Los Angeles County. At the June foreclosure rate, about 1 percent of homeowners will be forced out of their homes in the next 12 months.

Analysts were split last week on whether a tidal wave of residential foreclosures was about to hit Los Angeles, or whether the high-water mark had already been breached.

"The foreclosure volume is increasing, but we are going to see the majority of foreclosures next year," said Jim Lewis, senior vice president of the Real Estate Disposition Corp., a Santa Ana-based company that auctions real estate. "The employment base is shrinking, and foreclosures lag that, so in the future the banks will be taking back more homes."

In contrast to last year, said Lewis, he is auctioning off many existing single-family homes this year. "Last year, it was mostly tract homes in new developments. But now we are auctioning REO (bank-owned) properties."

But Lyons at Great Western said he thought the worst was behind the struggling Southland economy. "We think foreclosure activity has peaked and will begin to abate at this time," said Lyons. "For example, we have noted a pick-up in home sales in the first half of July. The lower interest rates -- fixed home-mortgage rates are at their lowest point in 20 years -- are beginning to have an effect."

For local thrifts and banks, the rise in residential foreclosures is unwelcome news. Many thrifts are just now turning the corner from disastrous 1980s adventures in big money deposits, commercial real estate development and junk bond investing -- all realms far removed from traditional S&L knitting of home loans and passbook accounts.

Foreclosure in Los Angeles County
                                                Dollar
Period                 Properties              volume(*)
June 1992                 1,135                 $347.3
May                         879                  223.8
April                       893                  252.5
March                       973                  247.8
February                    793                  235.0
January                     850                  278.9
December 1991               754                  277.7
November                    618                  162.3
October                     708                  219.6
September                   639                  184.0
August                      597                  224.7
July                        608                  247.6
June                        508                  126.4
June 1990                   169                   21.9
* In millions
Source: TRW-REDI Property Data

Reflecting the improved outlook, in the last few months several Wall Street analysts have begun to tout the stocks of Great Western, Los Angeles-based CalFed Inc., Irwindale-based H.F. Ahmanson (Home Savings of America), and Los Angeles-based Coast Savings Financial.

But now an ominous rise in residential foreclosures -- the thrifts' bread and butter -- could undermine the futures of some of the remaining S&Ls, said one analyst.

"Generally, thrifts are not heavily reserved against defaults in the single-family homes -- they were considered safe loans," said Charles Biderman, editor of the Market Trim Tabs stock market newsletter in Santa Rosa. By that, Biderman means that thrifts have not set aside the same amount of cash reserves, proportionally speaking, as they have for loans on commercial real estate, which hitherto have been considered more risky.

Now, a wave of defaults could eat through thrift reserves, just when the federal government is encouraging thrifts to build up reserve funds -- or else.

Already, local thrifts have reported higher delinquent and foreclosure rates on residential loans in the second quarter -- and the TRW-REDI data suggest the third quarter is going to be far worse.

As bad as the foreclosure numbers are, anecdotal evidence suggests the true picture may even be worse. Many homeowners are simply deeding properties over to lenders, avoiding foreclosure, or declaring bankruptcy, which forestalls foreclosure. Too, some lenders are evidently "carrying" some big homeowners.

"I have two friends who are behind in their loans payments on million-dollar homes," said Bob Daniels, a real estate broker with Marcus & Millichap. "One hasn't made payments since March, and the bank hasn't done anything. The other wrote a letter to the bank, and they cut the mortgage rate in half."