Do Rising Bond Yields Presage CA Defaults?

Continued strength in California housing markets has held foreclosures down in the first quarter, but the surge in bond yields will lead to rising interest rates and growing defaults and foreclosures in the state, according to Foreclosures.com, a Fair Oaks, Calif.-based investment advisory firm.Alexis McGee, president of Foreclosures.com, said rising home values and low interest rates have insulated many homeowners in financial distress from losing their homes, but that rising bond yields will make them vulnerable. "Fixed rates will start to creep up soon, and concerns about inflation will lead the [Federal Reserve Board] to raise short-term rates again, impacting all adjustable-rate loans," she said, thus curbing the refinancing option and boosting payments on adjustable-rate mortgages. "This will put a lot of people that used adjustable rates to qualify for expensive California homes in a bind," she said. ".... We will definitely see a rise in defaults this year." The company can be found on the Web at http://www.foreclosures.com.