Cities battle default wave

By JIM WASSERMAN
Sacramento Bee
Wednesday, November 07, 2007

Scared by growing numbers of bank-owned houses and for-sale signs in their neighborhoods, a handful of California cities are launching moves to help homeowners threatened with foreclosure.

Their initiatives so far are limited to offering advice. Nobody's opening up the checkbook to bail out homeowners. But with city officials worried that homeowners aren't seeking help after receiving notices of default -- the first step in the formal foreclosure process -- the moves have taken on a keen sense of urgency.

Citrus Heights, which since the first of the year has seen 270 foreclosures, has struck a deal with Neighborworks Homeownership Center, a nonprofit credit-counseling agency based in Sacramento. The group is mailing letters to city residents who have received default notices -- issued after a homeowner misses two or three consecutive monthly mortgage payments -- urging them to seek help. Citrus Heights will then pay Neighborworks $150 for every resident it helps.

"We don't know how far this is going to go," says Jim Lynch, community enhancement manager in Citrus Heights. "We've had housing setbacks over my 35 years, but I've never seen this many bank-owned properties and so many foreclosures."

Rancho Cordova, home to 175 foreclosures since January, plans a December workshop looking at solutions for homeowners in default. The city also is exploring a partnership with Neighborworks.

Folsom officials also have begun talking with Neighborworks. The city has seen 90 foreclosures since the start of the year, according to Foreclosures.com, a Fair Oaks Web site that tracks statistics.

Sacramento, with 1,740 foreclosures since Jan. 1, has ramped up code-enforcement efforts to deal with vacant housing. Its housing subsidiary, the Sacramento Housing and Redevelopment Agency, helps fund the Home Loan Counseling Center of Sacramento, which advises troubled borrowers. The agency also touts a Web page with default and foreclosure advice.

The local cities join a growing list of municipalities nationwide -- from Jacksonville, Fla., to Chicago to San Diego -- taking steps to confront growing trouble in their communities.

Nationally, the congressional Joint Economic Committee cites the potential for 2 million foreclosures through the end of 2008. Experts blame a tidal wave of risky home loans used in recent years to fuel a housing boom that has long run out of steam.

Many borrowers with high-cost subprime loans obtained with low "teaser" rates and no money down are seeing their adjustable rate mortgages reset and soar beyond the power of their paychecks. Worse, most can't refinance because their homes have lost value and lenders have tightened credit standards.

More than 6,500 homeowners have lost houses this year to foreclosure in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties, according to La Jolla-based researcher DataQuick Information Systems. Three of every four are in Sacramento County.

Citrus Heights is seeing foreclosures throughout its older neighborhoods.

"If your neighborhoods are constantly churning over and home ownership converts to rentals and then converts to foreclosure, the dynamics (of a city) start to weaken," said Reed Flory, Rancho Cordova's housing-services administrator.

The nation's cities are taking numerous approaches as the foreclosure problem rolls from East to West. Jacksonville is offering no-interest $5,000 loans to help people with short-term mortgage problems. Chicago and Baltimore advertise a "311" telephone number for people behind on mortgage payments to call. Cleveland's suburban officials are fixing broken windows, mowing lawns and installing alarms in empty houses to keep neighborhoods stable.

Some, like San Diego, are exploring government funding for nonprofit loan counselors. That's an option on the table locally, as well, where the emphasis is on guiding troubled borrowers toward help -- urging them to call their lenders, for example, or meet with credit advisers to review their finances.

"This is going to be a long-term cycle," says Pam Canada, executive director of Neighborworks. "We need to do the best we can to keep people out of that cycle."

Last year, 28 percent of mortgages in Citrus Heights were higher-cost and riskier subprime loans, according to a Sacramento Bee analysis of Federal Home Mortgage Disclosure Act data. Those loans are usually made to people with blemished credit histories. Thirty percent of mortgages in Rancho Cordova were subprime in 2006, according to the loan data.

Flory said Rancho Cordova has one mission: prodding its troubled borrowers to seek aid.

"The message is 'Don't sit there and do nothing,' " he said.