California setting a record with foreclosures

The rate of foreclosures in California during the last quarter of 2007 is double the rate of the last record quarter. There were 31,676 foreclosures during the fourth quarter, about double that of the previous record set in 1996. In comparison, the lowest rate of foreclosure occurred in the second quarter of 2005 – there were only 637 foreclosures in California then.

Experts are blaming the high rate of foreclosures on adjustable rate mortgages that reset at rates homeowners couldn't afford. Some say homeowners were simply buying houses they couldn't afford with help from unusually low rates that many knew wouldn't be around for long.

The median price for a home in California was $484,000 in March of 2007. That fell to $402,000 by the end of 2007. This drop has left many homeowners owing more on their houses than they're worth. So some are voluntarily walking away from what they know is a battle they'll lose. They see no point in hanging onto a property that isn't even worth the mortgage balance.

Homeowners with money problems say they're simply not able to sell their homes, so sometimes they end up in foreclosure because they've got no other option. But some homeowners do see a silver lining... they live in the house for free during the foreclosure and save their money for after they are kicked out.

The housing situation might get worse before it gets better. Too bad so many wanna-be homeowners stretched beyond what they could truly afford for a house. The rest of the economy will likely pay the price for these defaults, and lenders will raise their rates across the board to cover their losses. Stay tuned... there is much more to come in the housing market, and it doesn't look good.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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