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