California Mortgage Defaults Trend Down Again

October 20, 2009

La Jolla, CA.--The number of mortgage default notices filed against California homeowners fell last quarter compared with the prior three-month period, the result of lenders' evolving foreclosure policies, an uncertain legislative environment and an uptick in the number of mortgages being renegotiated, a real estate information service reported.

A total of 111,689 default notices were sent out during the July-through-September period. That was down 10.3 percent from 124,562 for the prior quarter, and up 18.5 percent from 94,240 in third quarter 2008, according to San Diego-based MDA DataQuick.

The number of recorded default notices peaked in the first quarter of this year at 135,431, although that number was inflated by deferred activity from the prior four months.

"It may well be that lenders have intentionally slowed down the pace of formal foreclosure proceedings. If so, it's not out of the goodness of their hearts. It's because they've concluded that flooding the market with cheap foreclosures in this economic environment may not be in their best financial interest. Trying to keep motivated, employed homeowners in their homes might be the most cost-efficient way to stem losses," said John Walsh, DataQuick president.

The median origination month for last quarter's defaulted loans was July 2006, the same as during this year's first and second quarters. A year ago the median origination month was June 2006, so the foreclosure process has moved one month forward during the past 12 months.

"There's a batch of truly nasty loans that were made in mid 2006. There's another batch made in late 2006. These are worse than the mortgages before and after, and it's taking a long time to process them," Walsh said.

The lenders that originated the most loans that went into default last quarter were Countrywide (7,583), Washington Mutual (5,146) and Wells Fargo (4,425). Along with Bank of America (1,979) and World Savings (4,237), they were also the most active lenders in the second half of 2006. Last quarter's default rate on loans originated in the second half of 2006 ranged from 1.7 percent for Bank of America to 11.9 percent for World Savings.

Smaller subprime lenders had far higher default rates for that period: ResMAE Mortgage was at 73.9 percent, Ownit Mortgage 69.5 percent, BNC Mortgage 61.4 percent, Argent Mortgage 59.9 percent and First Franklin 59.4 percent. While these and most other subprime lenders are long gone, their loans were bundled, resold and now live on as "troubled assets".

Indeed, 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. The servicers pursuing the highest number of delinquencies last quarter were ReconTrust Co, Quality Loan Service Corp and Cal-Western Reconveyance Corp.

While most foreclosure activity was still concentrated in affordable inland communities, the foreclosure problem continued to slowly migrate into more expensive areas. The state's most affordable sub-markets, which represent 25 percent of the state's housing stock, accounted for 52.2 percent of all default activity a year ago. In third-quarter 2009 it fell to 42.9 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 $12,665 on a median $343,200 mortgage.

On home equity loans and lines of credit in default, borrowers owed a median $3,948 on a median $62,800 credit line. However the amount of the credit line that was actually in use cannot be determined from public records.

San Diego-based 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 111,689 default notices were filed last quarter, they involved 108,372 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 San Francisco, Marin and Santa Cruz counties. The probability was highest in Merced, San Joaquin, and Riverside counties.

Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 50,013 during the third quarter. That was up 9.5 percent from 45,667 for the prior quarter, and down 37.1 percent from 79,511 for third-quarter 2008, which was the all-time peak.

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 continued to decline as a market factor, accounting for 42.8 percent of all California resale activity last quarter. It was 49.9 percent the prior quarter, and a year ago it was 47.5 percent. It peaked at 57.8 percent in the first quarter of this year. Foreclosure resales varied significantly by area last quarter, from 9.6 percent in San Francisco County to 70.2 percent in Merced County.

Of the homes foreclosed on statewide in an 18-month period ending this July, about 82 percent have re-sold on the open market, while 18 percent, or more than 57,000 homes, have not. Of those that have not re-sold, it cannot be determined from public records what portion is currently being marketed for sale, as opposed to, among other things, being used as rentals or being left vacant and not for sale. Over the past year California buyers have snapped up an average of nearly 18,000 foreclosure resales a month.

A year ago the percentage of foreclosures that had not yet re-sold was about twice as great, while the number of unsold foreclosures from the 18-month period ending in July 2008 was about 50 percent higher than it is now.

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

County/Region         2008Q3  2009Q3     Yr/Yr%
       
Los Angeles 17,073 21,850 28.00%
Orange 5,692 7,436 30.60%
San Diego 7,062 8,702 23.20%
Riverside 11,714 12,113 3.40%
San Bernardino 9,110 9,833 7.90%
Ventura 1,676 2,146 28.00%
Imperial 568 692 21.80%
SoCal 52,895 62,772 18.70%
       
San Francisco 353 607 72.00%
Alameda 3,482 3,940 13.20%
Contra Costa 4,103 4,753 15.80%
Santa Clara 2,814 4,035 43.40%
San Mateo 797 1,263 58.50%
Marin 258 428 65.90%
Solano 1,934 2,164 11.90%
Sonoma 1,021 1,282 25.60%
Napa 265 340 28.30%
Bay Area 15,027 18,812 25.20%
       
Santa Cruz 342 419 22.50%
Santa Barbara 593 739 24.60%
San Luis Obispo 370 539 45.70%
Monterey 1,260 1,115 -11.50%
Coast 2,565 2,812 9.60%
       
Sacramento 5,541 6,098 10.10%
San Joaquin 3,432 3,371 -1.80%
Placer 973 1,414 45.30%
Kern 2,774 3,166 14.10%
Fresno 2,202 2,758 25.20%
Madera 499 570 14.20%
Merced 1,399 1,245 -11.00%
Tulare 883 1,178 33.40%
Yolo 405 443 9.40%
El Dorado 342 629 83.90%
Stanislaus 2,636 2,482 -5.80%
Kings 140 247 76.40%
San Benito 202 210 4.00%
Yuba 307 312 1.60%
Colusa 68 62 -8.80%
Sutter 269 403 49.80%
Central Valley 22,072 24,588 11.40%
       
Mountains* 526 932 77.20%
       
North Calif* 1,155 1,773 53.50%
       
Statewide* 94,240 111,689 18.50%

* includes additional counties

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

County/Region 2008Q3 2009Q3 Yr/Yr%
       
Los Angeles 11,690 7,927 -32.20%
Orange 3,997 2,238 -44.00%
San Diego 5,797 3,601 -37.90%
Riverside 10,813 6,776 -37.30%
San Bernardino 7,930 4,999 -37.00%
Ventura 1,420 793 -44.20%
Imperial 476 365 -23.30%
SoCal 42,123 26,699 -36.60%
       
San Francisco 192 179 -6.80%
Alameda 2,521 1,760 -30.20%
Contra Costa 3,662 2,053 -43.90%
Santa Clara 2,165 1,237 -42.90%
San Mateo 515 370 -28.20%
Marin 149 110 -26.20%
Solano 1,754 1,025 -41.60%
Sonoma 933 585 -37.30%
Napa 202 143 -29.20%
Bay Area 12,093 7,462 -38.30%
       
Santa Cruz 276 158 -42.80%
Santa Barbara 629 340 -45.90%
San Luis Obispo 248 223 -10.10%
Monterey 1315 575 -56.30%
Coast 2,468 1,296 -47.50%
       
Sacramento 5,643 3,384 -40.00%
San Joaquin 3,862 1,919 -50.30%
Placer 766 610 -20.40%
Kern 2,488 1,855 -25.40%
Fresno 1,891 1,279 -32.40%
Madera 433 355 -18.00%
Merced 1,639 819 -50.00%
Tulare 687 536 -22.00%
Yolo 364 238 -34.60%
El Dorado 243 243 0.00%
Stanislaus 2,816 1,476 -47.60%
Kings 82 88 7.30%
San Benito 191 100 -47.60%
Yuba 297 196 -34.00%
Colusa 40 41 2.50%
Sutter 291 152 -47.80%
Central Valley 21,733 13,291 -38.80%
       
Mountains* 324 424 30.90%
       
North Calif* 770 841 9.20%
       
Statewide* 79,511 50,013 -37.10%

* 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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