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Forbes magazine just came out with an article titled, “America’s Luxury Foreclosure Capitals” and California had a disturbing 24 of the top 25 troubled luxury foreclosure spots and nine of them were in Orange County (The OC) with the City of Laguna Niguel topping the list.
This sector of our foreclosure crisis will grow considerably in 2009. Especially once well to do Californians run out of time on their negative amortization mortgages that are ticking time loan bombs.
Just because a neighborhood is full of swimming pools and luxury cars doesn’t mean the guy around the corner is making his mortgage payments.
Hell, I bet 75% of these mortgages made in these zip codes were some type of Alt-A or subprime hybrid product. It wouldn’t be hard to find quite a few Southern California ex-mortgage professionals that will testify to the fact that many of these homes and condos were bought and refinanced with negative amortization loans, AKA Pay Option ARM’s or Pick A Payment Loans.
In fact there were many mortgage broker outfits and entire telemarketing operations that focused on selling this toxic loan product to mid to high-end clientele in the the land of big home, big mortgages and most of all, BIG COMMISSIONS. This is where loan officers, brokers, realtors, title companies and lenders could make the most amount of money per home and loan and what better place to do that than in the Golden State.
Many million dollar plus transactions had over $100,000 in gross commissions built in to them. Between the mortgage broker and the real estate broker, they absolutely had a HUGE part in articficially driving up home values based on greed, not supply and demand. Then you had Johnny who was bit greedy himself and who wanted to use his house as a ATM and buy the latest 750 Beemer he could not afford with his $200k HELOC.
Welcome to the next wave of huge luxury home and mortgage write downs. This may be the last nail in the foreclosure coffin for California’s deepening housing crisis. Driving values and wealth down faster per house than any middle or lower class home foreclsoure that will take on average 10 houses to equal losses experienced in one million dollar foreclosure.
More from Forbes:
Southern California’s sunny climate and 42-mile stretch of beach makes it a desirable locale in which to settle. But a handful of homeowners who bought at the peak with adjustable and no-down-payment mortgages are now sending their newly minted keys back to the bank.
Sen. Dick Ackerman might argue that weather plays a role. He represents a sizable chunk of South Orange County, including Laguna Niguel, and says that there is something about the desirability of the area that makes the real estate market swing a little too far during boom and bust cycles.
“People bought high-end homes when the economy was good, and then the economy went down a tick, and now some people can’t make their payments,” he says. “It happens in cycles, but this time we’re seeing more of it.”
Moody’s Economy.com economist Mark Zandi agrees.
“The combination of rising unemployment and falling home prices drives foreclosure,” he says. Southern California is experiencing both. “It was a through-the-roof boom and a through-the-floor bust.”
