Many Foreclosures Driven by Investors, Speculators: Investigation

More than 20 percent of all properties in the San Francisco Bay-area that fell into foreclosure in the first nine months of this year were bought by investors, according to an investigative story Sunday in the San Francisco Chronicle.

The newspaper concludes that many of the homeowners impacted by the subprime mortgage meltdown are “hardly the struggling home buyers often portrayed as victims of the Bay Area's and nation's foreclosure crisis. Some bought houses as often as other people buy shoes, rarely putting down any money,’ the paper reported.

The newspaper worked with DataQuick Information Systems and analyzed the public records of the 6,557 properties that went into foreclosure from January through September. “Of properties repossessed by lenders, 1 in 6 had been owned by people who had two or more foreclosures in their names. Eighteen Bay Area investors had five or more foreclosures,” the paper reported.

Of the 6,557 properties, about 1,350 were owned by people who had multiple properties foreclosed upon during the first three quarters of 2007 or by those who listed mailing ZIP codes different from their property's address at the time of purchase, an indication the property was an investment.

The Chronicle’s analysis of DataQuick’s records found that most of these foreclosed properties were bought with little or no money down. About 80 percent of these buyers put down 5 percent or less of their own money toward the purchase prices.

About 80 percent of the investor-owned Bay Area foreclosures were purchased at the height of the real estate market in 2005 and 2006, according to the Chronicle’s story “Investors own about one-fifth of Bay Area homes in foreclosure.”

The paper found that many of the investors hoped to “flip” their investment, that is, quickly sell it at a profit as home prices keep rising. However, there may also have been a fraud with scammers inflating property appraisals. They would then take out loans on the property, and sell it for the inflated price, according to the paper.

In another investigation, the Mortgage Bankers Association analyzed loan records for properties in early stages of foreclosure and found that non-owner-occupied homes appeared to account for 13 percent of prime defaults and 11 percent of subprime defaults nationwide. The association found that in California, absentee owners accounted for 21 percent of prime defaults and 15 percent of subprime defaults.