Golden State Mortgage Defaults Jump to Record High

April 22, 2009

La Jolla, CA.--Lenders filed a record number of mortgage default notices against California homeowners during the first three months of this year, the result of the recession and of lenders playing catch-up after a temporary lull in foreclosure activity, a real estate information service reported.

A total of 135,431 default notices were sent out during the January- to-March period. That was up 80.0 percent from 75,230 for the prior quarter and up 19.0 percent from 113,809 in first quarter 2008, according to MDA DataQuick.

Last quarter's total was an all-time high for any quarter in DataQuick's statistics, which for defaults go back to 1992. There were 121,673 default notices filed in second quarter 2008 and 94,240 in third quarter 2008, during which a new state law took effect requiring lenders to take added steps aimed at keeping troubled borrowers in their homes.

"The nastiest batch of California home loans appears to have been made in mid to late 2006 and the foreclosure process is working its way through those. Back then different risk factors were getting piled on top of each other. Adjustable-rate mortgages can be good loans. So can low- down-payment loans, interest-only loans, stated-income loans, etcetera. But if you combine these elements into one loan, it's toxic," said John Walsh, DataQuick president.

The median origination month for last quarter's defaulted loans was July 2006. That's only four months later than the median origination month for defaulted loans a year ago, in first quarter 2008. That suggests a period where underwriting criteria were particularly lax.

Of the 3.7 million home loans made in 2004, less than 1 percent have since resulted in a lender filing a default notice. Of the 3.7 million loans originated in 2005, 4.9 percent have triggered a default notice so far. Of the 3 million in 2006, 8.5 percent have so far resulted in default. A particularly toxic period appears to have been August through November 2006 which had more than a 9 percent default rate. Of the 2.1 million loans made in 2007, it's 4.6 percent - a percentage that's likely to rise significantly during the rest of this year.

The lending institutions with the highest default rates for loans originated in August to November 2006 include ResMAE Mortgage (69.9 percent of loans resulting in a default notice), Master Financial (64.6 percent) and Ownit Mortgage Solutions (63.6 percent). Of the major lenders, IndyMac has a default rate on those loans of 18.9 percent, World Savings 8.0 percent, Countrywide 7.7 percent, Washington Mutual 6.3 percent and Wells Fargo 3.4 percent. Less than 1 percent of the home loans originated in late 2006 by Citibank and Bank of America have since gone into default.

Many, if not most, of the loans made in 2006 are owned and/or serviced by lending institutions other than those that made the loans (mortgages are often sold off after the initial lender originates the loan, and are often serviced by a different entity). Many of the originating lending institutions no longer exist.

While most first quarter 2009 foreclosure activity was still concentrated in affordable inland communities, there are signs that the problem is slowly migrating into other areas. The affordable sub-markets, which represent 25 percent of the state's housing stock, accounted for more than 52.0 percent of all default activity in 2008. Last quarter it fell to 47.5 percent.

On primary mortgages, California homeowners were a median five months behind on their payments when the lender filed the notice of default. The borrowers owed a median $12,926 on a median $346,400 mortgage.

On home equity loans and lines of credit, borrowers owed a median $4,229 on a median $63,600 credit line. However the amount of the credit line that was actually in use cannot be determined from public records.

MDA DataQuick is a division of MDA Lending Solutions, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates. MDA DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts. Notices of Default are recorded at county recorders offices and mark the first step of the formal foreclosure process.

Although 135,431 default notices were filed last quarter, they involved 130,718 homes because some borrowers were in default on multiple loans (e.g. a primary mortgage and a line of credit). Multiple default recordings on the same home are trending down, DataQuick reported.

Mortgages were least likely to go into default in Marin, San Francisco, and San Mateo counties - the historical norm. The probability was highest in Riverside, Merced and San Joaquin counties.

Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 43,620 during the first quarter. That's down 5.5 percent from 46,183 for the prior quarter, and down 7.6 percent from 47,221 for first-quarter 2008. They reached 79,511 during last year's third quarter before dropping because of lenders' temporary policy changes (e.g. a temporary foreclosure moratorium).

In the last real estate cycle, Trustees Deeds peaked at 15,418 in third-quarter 1996. The state's all-time low was 637 in the second quarter of 2005, MDA DataQuick reported.

There are 8.5 million houses and condos in the state.

Foreclosure resales have emerged as a significant market factor, accounting for 58.1 percent of all California resale activity last quarter. A year ago it was 33.1 percent. Foreclosure resales varied significantly by area, from 13.0 percent in San Francisco County to 80.8 percent in Merced County.

Notices of Default (first step in foreclosure process)
houses and condos

County/Region            2008Q1       2009Q1      Yr/Yr%
       
Los Angeles              20,339       27,981        37.6%
Orange                    7,082        8,427        19.0%
San Diego                 8,975       10,111        12.7%
Riverside                15,022       16,906        12.5%
San Bernardino           11,149       13,276        19.1%
Ventura                   2,176        2,648        21.7%
Imperial                    566          885        56.4%
SoCal                    65,309       80,234        22.9%
                                                         
San Francisco               420          569        35.5%
Alameda                   3,327        4,016        20.7%
Contra Costa              4,718        5,120         8.5%
Santa Clara               3,074        4,090        33.1%
San Mateo                   911        1,241        36.2%
Marin                       314          345         9.9%
Solano                    2,091        2,464        17.8%
Sonoma                    1,392        1,241       -10.8%
Napa                        284          352        23.9%
Bay Area                 16,531       19,438        17.6%
                                                         
Santa Cruz                  447          426        -4.7%
Santa Barbara               897          931         3.8%
San Luis Obispo             385          538        39.7%
Monterey                  1,468        1,305       -11.1%
Coast                     3,197        3,200         0.1%
                                                         
Sacramento                6,898        7,250         5.1%
San Joaquin               4,657        4,226        -9.3%
Placer                    1,031        1,510        46.5%
Kern                      3,211        4,238        32.0%
Fresno                    2,464        3,445        39.8%
Madera                      523          741        41.7%
Merced                    1,759        1,545       -12.2%
Tulare                      947        1,414        49.3%
Yolo                        488          573        17.4%
El Dorado                   394          595        51.0%
Stanislaus                3,192        3,119        -2.3%
Kings                       182          233        28.0%
San Benito                  272          203       -25.4%
Yuba                        357          395        10.6%
Colusa                       81           86         6.2%
Sutter                      337          346         2.7%
Central Valley           26,793       29,919        11.7%
                                                         
Mountains*                  588          905        53.9%
                                                         
North Calif*              1,391        1,735        24.7%
                                                         
Statewide*              113,809      135,431        19.0%

* includes additional counties

Trustees Deeds Recorded (signal homes were lost to foreclosure)
houses and condos

County/Region 2008Q1 2009Q1 Yr/Yr%
       
Los Angeles 7,054 6,907 -2.1%
Orange 2,233 2,146 -3.9%
San Diego 3,666 3,073 -16.2%
Riverside 6,519 6,388 -2.0%
San Bernardino 4,525 4,814 6.4%
Ventura 801 652 -18.6%
Imperial 226 393 73.9%
Socal 25,024 24,373 -2.6%
       
San Francisco 124 101 -18.5%
Alameda 1,321 1,215 -8.0%
Contra Costa 2,228 1,738 -22.0%
Santa Clara 926 1,157 24.9%
San Mateo 268 279 4.1%
Marin 76 105 38.2%
Solano 1,053 940 -10.7%
Sonoma 538 421 -21.7%
Napa 112 94 -16.1%
Bay Area 6,646 6,050 -9.0%
       
Santa Cruz 145 133 -8.3%
Santa Barbara 340 289 -15.0%
San Luis Obispo 139 147 5.8%
Monterey 621 585 -5.8%
Coast 1,245 1,154 -7.3%
       
Sacramento 3,936 2,819 -28.4%
San Joaquin 2,436 1,701 -30.2%
Placer 495 407 -17.8%
Kern 1,530 1,452 -5.1%
Fresno 1,136 1,019 -10.3%
Madera 221 307 38.9%
Merced 868 861 -0.8%
Tulare 378 444 17.5%
Yolo 224 197 -12.1%
El Dorado 143 180 25.9%
Stanislaus 1,596 1,367 -14.3%
Kings 53 49 -7.5%
San Benito 144 98 -31.9%
Yuba 208 152 -26.9%
Colusa 33 39 18.2%
Sutter 180 127 -29.4%
Central Valley 13,581 11,219 -17.4%
       
Mountains* 208 262 26.0%
       
North Calif* 517 562 8.7%
       
Statewide* 47,221 43,620 -7.6%

* includes additional counties

Source: DataQuick Information Systems

Media calls: Andrew LePage (916) 456-7157 or John Karevoll (909) 867-9534

Copyright 2009 DataQuick Information Systems. All rights reserved.

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