Foreclosures surged in Los Angeles County as rising rates stressed borrowers who used "aggressive financing" to get into homes they could not otherwise afford.
The number of foreclosures in Los Angeles County during the first quarter totaled 5,949, up 17 percent from the previous three-month period and a whopping 63 percent above the total in the comparable quarter a year earlier, Default Research Inc. said in an e-mailed statement to MortgageDaily.com.
"With rising interest rates, the economy slowing down in that part of California, and a quarter of L.A. residents working at jobs that do not pay a living wage, the significant increase in foreclosures is a very alarming trend in the largest county in the nation," said Serdar Bankaci, president and chief executive of Default Research, in an announcement.
The tough battle the average L.A. homeowner faces to retain their property is underscored by the foreclosures in single-family homes and duplexes --which were "hit the hardest" with increases of 77 percent and 88 percent, respectively, according to the announcement.
"The rising foreclosures are due to the 'average Joe' buying a house he cannot afford because of inflated home prices," he added. "Then, with the rising interest rates, he cannot pay for the mortgage. Many of the homeowners used 'aggressive financing' to buy homes they could not afford."
Such financing includes 100 percent financing and interest-only mortgages, with most having adjustable-rate features, Bankaci told MortgageDaily.com.
Additionally, he said many of these borrowers created a bigger bind for themselves by extracting much equity when home appreciation was highest, from 2002 to about the second quarter 2005.