Defaults rise in California

August 21, 2006 8:57am

•  Q2 jumps by 67 percent year over year

•  Buyers done in by ‘creative mortgages’

Foreclosure activity in California in the second quarter jumped by 67 percent over the year-earlier period, according to figures released Monday by, a Central Valley-based real estate investment advisory firm and publisher of foreclosure property information.

"Year over year at the end of the second quarter of 2006, foreclosure activity in California has increased more than 67 percent," says Alexis McGee, president of Fair Oaks-based

The once hot housing markets in Las Vegas and Phoenix are cooling off rapidly and defaults there are on the rise as well, she says.

"Both Las Vegas and Phoenix were impacted by speculators," says Ms. McGee, and more than 25 percent of new home sales in both markets were going to out of state investors who had no intention of ever occupying the homes they purchased.

Now those who came late to the party find themselves squeezed by rising interest rates and resulting negative cash flows, she says.

“The speculators are definitely on the run, and walking away from properties they cannot afford to hold and cannot sell at a profit," says Ms. McGee.

In Colorado, foreclosure activity has put Denver well up in the top 10 of metro areas with the highest foreclosure rates, according to’s figures.

“Almost 5,300 homes in Colorado have already been lost in foreclosure and, as of August 11, over 11,300 were in the pre-foreclosure process," says Ms. McGee. She cites recent reports by economists that showed that Colorado was lagging behind the rest of the nation in economic recovery from the 2001-2002 recession.

"A more severe situation, however, is in California," she says. "A primary reason is the overwhelming use of so-called creative mortgage products people were sold in order to buy ever more expensive homes."

More than $1 trillion of these exotic mortgages were due to reset in the next 18 months, she says, "and payment shock to such homeowners would be severe if not financially fatal."

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