Wednesday, March 05, 2008

in which I talk to a bank bigshot

Foreclosures up eightfold in last two years
By Sam Bhagwat
of The Valley Mirror

Home sweet home no more.

Foreclosures in Glenn County are up sharply, from four in 2005, to eight in 2006, to 31 in just the first nine months of 2007.

The problem isn’t so much that more people are getting into financial trouble, statistics show, but that more people aren’t able to dig themselves out.

Foreclosure proceedings start when banks file a notice of default against a borrower, indicating that they’re behind on their payments. From that point, the homeowner has from four to six months to negotiate with the lender before their house sold at a public auction.

Compare 2005 to the first nine months of 2007. Only about twice as many people received notices of default in 2007 — but eight times as many were foreclosed out of their houses.

Once a homeowner starts getting behind on payments, lenders want their borrowers to have a plan to get back on track.

“We as a lender are always better off with someone in their house as opposed to owning the house,” said Rick Hagstrom, chief operating officer of Tri-Counties Bank. Houses, he says, are a “dead asset;” banks must also set aside extra reserves when sitting on them.

Thus, if a solution looks possible or probable, a lender may wait four or five months after the missed payment to file a notice of default. Mr. Hagstrom gave the example of a couple going through a divorce; a bank would await the outcome for three or four months before doing anything.

But if the buyer seems to have no hope of paying, or is stonewalling, he said, the lender will often file as soon as one month later.

Mr. Hagstrom said that recent foreclosures have been heavily concentrated in suburban areas with “explosive growth” in the last five to seven years. That’s what makes these statistics strange for sleepy Glenn County.

“You have a bit of that in Orland,” said Glenn County Title President Rick Thomas — but nowhere else.

Unfortunately, the MIRROR was unable to reach any defaulting homeowners; those listed in the phone book had defunct numbers.

But the current upswing in foreclosures is unlikely to trigger a sudden batch of bargains on the county steps. Around 95 percent of homes auctioned there will be purchased by the bank.

“Many people show up,” said Mr. Hagstrom, “but few will (outbid) the lender.”

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