Default Dangers | SierraSun.com

Default Dangers

Andrew CristanchoSierra Sun

Realtors in Tahoe-Truckee say the word foreclosure has not been spoken in the area since the early 1990s until now.It is the majority of my listings, said Kelly Smith, a North Shore real estate broker.Smith represents a small stable of 21 properties and his Tahoe Vista company, Century 21, is contracted to sell homes owned by Countrywide Financial, one of the more familiar names associated with the subprime mortgage situation. With 62 percent of his properties in foreclosure, Smith says it shows that the Tahoe-Truckee market is not immune to the more drastic fallout caused by the housing meltdown. Smith said the foreclosures are concentrated in the more affordable areas and the lower price ranges and are typically the primary residence of the owners.The areas hardest hit so far, are Truckee and South Lake Tahoe, he said.Tahoe City broker Michael Willette said that typically banks that own the loan on a home will send a notice of default to the homeowner after three months of delinquent payments, notifying them that they have an additional 90 days to begin paying back their loans. After that the bank takes possession of the home.Tahoe-Truckee homes have held their value fairly well as a function of the custom nature of building in the area, said Robin Cullen, a Tahoe City mortgage broker. But homeowners have lost equity in the last several months.As with the national trend, one of the reasons for the sudden jump in local foreclosures stems from unqualified borrowers being sold into sub-prime loans. One such loan that people began to take advantage of two to three years ago was the Option ARM mortgages, Willette said. The loan features an initial interest rate called a teaser that could be as low as one percent. Willette said such loans work on Adjustable Rate Mortgages that are recalculated after the first two to three years at a much higher rate. The initially low monthly mortgage payments ballooned beyond what some homeowners could afford. These loans have been resetting with a vengeance, Willette said.To mitigate the national downturn, President Bush signed an economic stimulus package that included help to homeowners threatened with foreclosure. In some instances homeowners will be given the opportunity to put the foreclosure process on pause for 30 days while lenders look for a way to make the mortgage more affordable.Under the new program, six of the nations largest financial institutions Bank of America, Citigroup, Countrywide, J.P. Morgan Chase, Washington Mutual and Wells Fargo, which account for 50 percent of the mortgage servicing market said they will begin contacting homeowners who are 90 or more days overdue on their monthly mortgage payments.But Smith said 30 days equates to a Band-Aid on a big wound.In most cases, he said, they are postponing the inevitable.Cullen indicated that the federal program could help local homeowners in financial trouble as lenders will be more helpful in finding a solution to the problem. She said banks will be more willing to engage in loss mitigation, which she called a good thing that helps everyone in the food chain.Loss mitigation could come in the form of a re-negotiation of the loan terms or a short sale, she said.Short sale means the bank doesnt own it yet and [the homeowner] agrees to put in on market and agrees to accept a lower price, and it takes the lenders approval for the sale, Cullen said.Cullen predicted local sales would pick up again, although it would continue to be slower than past years. I think that we could see the market to continue to be soft, but we will [now] have more cooperation from lenders and more equitable interest rates, she said.