TRENDS IN DELINQUENCIES

AND FORECLOSURES IN

CALIFORNIA

Community Development Department, Federal Reserve Bank of San Francisco

April 2009

Outline of Presentation

National Trends

Rising foreclosures

House price declines

Rising unemployment

California

Trends in foreclosure

Housing market softening

Rising unemployment

Scale of loan modifications still falls short of need

National Trends

National Trends

Foreclosures rose steadily in 2008, with wide

repercussions for US economy

After a slight decline in the national foreclosure rate in

the 3rd Quarter of 2008, rose again in 4th Quarter

Factors driving foreclosures nationally

House price declines

Rising unemployment, coupled with turmoil in financial

and credit markets, may further influence foreclosure

rate going forward

National Foreclosure Starts Rose Slightly in 4th

Quarter of 2008

Source: Mortgage Bankers Association, National Delinquency Survey, 4th Q 2008

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2000 2002 2003 2004 2005 2006 2007 2008

National Foreclosures Starts Percent of All Loans

Nationally, House Prices Continue to Decline

Source: Case - Shiller Home Price Index, 4th Q 2008

100

120

140

160

180

200

2000 2001 2002 2003 2004 2005 2006 2007 2008

Case-Shiller National House Price Index (2000 = 100, quarterly)

Recession Marks Significant Jump in

Unemployment

Source: Bureau of Labor Statistics

0

2

4

6

8

10

12

1989 1993 1997 2001 2005 2009

Unem

plo

ym

ent R

ate

U.S. Unemployment Rate

Recession Unemployment Rate

California Trends

Foreclosures in California are Above the

National Average

Source: Mortgage Bankers Association, National Delinquency Survey, 4th Q 2008

0

0.5

1

1.5

2

2.5

3

Alaska Washington Oregon Utah Idaho Hawaii US California Arizona Nevada

Foreclosure Starts (Percent of All Loans)

4Q 2005 4Q 2006 4Q 2007 4Q 2008

Unlike National Trends, California Saw a Decrease in

Foreclosure Starts in 4th Quarter 2008

Source: Mortgage Bankers Association, National Delinquency Survey, 4th Q 2008

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2005 2006 2007 2008

Perc

ent of

All

Loans

California: Foreclosure Starts

California Has Seen Significant and Steep

Decline in House Prices

Source: Federal Housing Finance Agency (formerly OFHEO), 4th Quarter 2008

FH

FA H

ouse

Pri

ce I

ndex

20

00

=10

0

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005 2006 2007 2008

FHFA (formerly OFHEO) House Price Index(2000=100, quarterly)

California

United States

Northern CA MSAs Experiencing Significant

House Price Declines

Source: Federal Housing Finance Agency (formerly OFHEO), 4th Quarter 2008

FH

FA H

ouse

Pri

ce I

ndex

20

00

=10

0

100

120

140

160

180

200

220

240

2000 2001 2002 2003 2004 2005 2006 2007 2008

FHFA House Price Index: Northern California(2000 = 100)

OaklandSacramento

San Francisco

California’s Foreclosures are

Concentrated in Subprime ARM Market

Source: Mortgage Bankers Association, National Delinquency Survey, 4th Q 2008

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2005 2006 2007 2008

Fore

closu

re S

tart

s by

Type

(Perc

ent of

All L

oa

ns)

Foreclosure Starts by Loan Type

Prime Fixed Prime ARM Subprime Fixed Subprime ARM

Approximately 1 in 4 California Households Received a

High Cost Loan during the Housing Boom

Source: Home Mortgage Disclosure Act Data, 2005

20.4%

22.7% 23.1%23.6%

24.3%

25.9%

27.3%28.0% 28.1%

29.2%

0%

5%

10%

15%

20%

25%

30%

35%

Hawaii Alaska Oregon Washington Idaho California USA Arizona Utah Nevada

Percent of All Borrowers with High Interest Conventional Loans, 2005

High Cost Lending in California More Prevalent

Among Minority Borrowers

Source: Home Mortgage Disclosure Act Data, 2005

0%

10%

20%

30%

40%

50%

60%

70%

All borrowers White borrowers Asian/Pacific Islander borrowers

Native American borrowers

Hispanic/Latino borrowers

Black borrowers

California: High Cost Conventional Loans by Race, 2005

Unemployment Rate in California on the

Rise, May Affect Future Foreclosures

Source: Bureau of Labor Statistics, March 2009

0

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Em

plo

ym

ent R

ate

Unemployment Rate

United States

California

Employment Trends by Industry in CA

Source: Bureau of Labor Statistics, February 2009; *Annualized.

Total Employed (thousands) Percent Change

California February 2009 1-mo.* 3-mo.* 12-mo.

Total 14,534.8 -9.1 -7.3 -4

Trade, Transportation & Utilities 2,742.5 -6.7 -6.9 -5.5

Professional & Business Svcs. 2,164.8 -15 -9.9 -4.5

Educational & Health Srvs. 1,742.5 3 0.9 1.8

Leisure & Hospitality 1,533.5 -10.9 -5 -2.8

Manufacturing 1,355.4 -13.1 -12.3 -6.2

Financial Activities 816.7 -10 -7 -6

Construction 681.9 -41.2 -25.7 -18.5

Other Services 510.0 -3 -3 -1.2

Information 450.7 23.6 -22.3 -4

Government 2,508.6 -1.5 -1.3 -0.3

Natural Resources & Mining 28.2 -19 -2.8 0.4

Significant Drop in Construction Employment

Source: Bureau of Labor Statistics, March 2009

-20

-15

-10

-5

0

5

10

15

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year-

over-

year

perc

ent ch

ange

Industry Employment Growth: Construction(Year-over-year percent change, monthly)

California

United States

State & Local Data Maps

California Data Maps

Source: Lender Processing Services Inc. Applied Analytics, September 2007

Lending VolumesSeptember 2007

California Data Maps

Source: Lender Processing Services Inc. Applied Analytics, September 2007

Areas Affected by Concentrated ForeclosuresSeptember 2007

Areas Affected by Concentrated ForeclosuresApril 2008

California Data Maps

Source: Lender Processing Services Inc. Applied Analytics, April 2008

California Data Maps

Source: Lender Processing Services Inc. Applied Analytics, November 2008

Areas Affected by Concentrated ForeclosuresNovember 2008

California Data Maps

Source: Lender Processing Services Inc. Applied Analytics, February 2008

Areas Affected by Concentrated ForeclosuresFebruary 2009

Neighborhoods Affected by Concentrated ForeclosuresFebruary 2009

Bay Area Data Maps

Source: Lender Processing Services Inc. Applied Analytics, February 2009

Neighborhoods at Risk of Additional ForeclosuresFebruary 2009

Bay Area Data Maps

Source: Lender Processing Services Inc. Applied Analytics, February 2009

Percent of Loans in Foreclosure/REONovember 2008

Concentration of REO PropertiesFebruary 2009

Bay Area Data Maps

Source: Lender Processing Services Inc. Applied Analytics, February 2009

Loan workouts reach approximately

55,000 borrowers each quarter

Source: Hope Now Alliance Servicing Data, 4th Quarter 2008

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008

Num

ber

(Adju

sted f

or

Hope N

ow

Serv

icers

)

California Loan Workouts

Repayment Plans Loan Modifications

Yet, still more than 300,000 borrowers in California were

seriously delinquent on their mortgage in 4th Qtr 2008

Source: Hope Now Alliance Servicing Data, 4th Quarter 2008

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Serious Delinquencies Foreclosure Starts Foreclosure Sales Repayment Plans Loan Modifications

Num

ber

(Adju

sted f

or

Hope N

ow

Serv

icers

)

Foreclosure & Delinquencies v. Loan Workouts in California4th Quarter 2008

Conclusions

Conclusions

Multi-pronged strategy is needed to stem

foreclosure crisis

Continued foreclosure prevention efforts are critical

Foreclosure Prevention: Borrower Outreach, Refinance

and Loan Modification (including principal reduction)

Reaching these borrowers now may help to prevent

unnecessary foreclosures

Encourage borrowers to contact the Hope Hotline by calling

(888) 995-HOPE or visiting www.995hope.org

Conclusions

Other strategies that can help to mitigate the

negative impacts of foreclosure on families and

neighborhoods

Addressing vacant properties: ensuring that servicers

maintain properties

REO property disposition: return REO properties into

productive use, affordable housing

Ensuring continued access to credit and homeownership:

credit repair, financial education, responsible lending

For More Information:

FRBSF Community Development Website

Links to other resources and research on foreclosure trends and mitigation strategies

All publications, presentations available on our website

Conference materials also posted shortly after events

http://www.frbsf.org/community/