As the employment picture brightens, lenders in California are seeing stabilization in the number of mortgage foreclosures for the first time in five years.
Foreclosures in the Golden State are on track to reach 76,680 this year, just slightly above the 76,311 level in 1994, according to a study by TRW Redi Property Data, an Anaheim, Calif.-based consulting firm.
The projected rise is well below the double-digit increases of previous years. Foreclosures have grown fivefold since 1990, when the state's prolonged recession began. The worst year was 1992, when foreclosures rose 87%.
TRW based its projected 1995 figure on the number of trustee's deeds filed through the first seven months of this year.
Analysts say a resurgence in employment rates in the state is the main reason for the turnaround.
"Obviously, you won't end up in foreclosure if you have a job and can continue to pay your mortgage," said Nima Nattagh, market analyst for TRW Property Data.
Employment in California is up 1% this year, said Steve Cochrane, senior economist at Regional Financial Associates in West Chester, Pa. And the gain may be closer to 2% by the time the California Department of Finance compiles its final figures for 1995, he added.
The figures may not be remarkable when compared with general employment growth in the United States, but they represent a solid gain over California's 1.7% drop in employment rates in 1992.
The state's work force was hit hard by the decrease in defense spending that began after the fall of the Berlin Wall in 1989, Mr. Cochrane said. "Almost immediately, the defense aircraft industry began cutting back," he recalled.
The shift of some high-technology factories to other areas of the country with lower labor costs also left many people in the state jobless.
But much of the high-tech business is coming back, said Mr. Cochrane, who also pointed to a jump in activity from Los Angeles ports as exports to the Pacific Rim rise.
Fiscal problems in California and the bottoming out of an overheated real estate market have also peaked, with home prices improving, Mr. Cochrane said. "Clearly, the state is out of recession," he declared.
The decline in foreclosure rates has also reflected a recent trend among lenders to work out loans instead of foreclosing.
This practice "makes more financial sense in the long term," said Cathe Bole, head of foreclosures and loss mitigation for the Santa Ana, Calif.- based law offices of Steven Melmet.
By working with borrowers in default, lenders can avoid eviction costs and spending associated with refurbishing the property, and "they will still be getting some money in," Ms. Bole said.
Hard figures are not yet available, she said, but there is "definitely" an increase in loss mitigation business. The company has just opened department to offer such services in California, Arizona and Nevada.
Most observers believe California's comeback will last. "Short of any major shock to the economy, I expect to see continued improvement," said TRW's Mr. Nattagh.
Although foreclosure rates are improving around the country, Mortgage Bankers Association economist Debbie Prigal is quick to stress that California is not a barometer for the rest of the U.S. There's no guarantee, she said, that the good news in the Golden State will be shared across the country.