Golden State Mortgage Defaults Drop to Four-Year Low

July 19, 2011

La Jolla, CA.--The number of California homes that went into foreclosure fell to a four-year low last quarter, the result of a more stable housing market as well as policy changes in the mortgage servicing industry, a real estate information service reported.

A total of 56,633 Notices of Default (NoDs) were recorded at county recorders offices during the April-to-June period. That was down 17.0 percent from 68,239 for the prior quarter, and down 19.2 percent from 70,051 in second-quarter 2010, according to San Diego-based DataQuick.

Last quarter's activity was the lowest for any quarter since 53,493 NoDs were recorded in the second quarter of 2007. It was well below half the record 135,431 default notices recorded in the first quarter of 2009.

"A lot of theories are being floated as to why the numbers are down. Bank policy changes. Legal challenges. Politics. Holding back temporarily so as not to flood the market. The fact of the matter is that no one really knows, outside of lending and servicing industry insiders. One thing is certain: Homeowner distress spreads fastest when home price declines are steepest. And it now appears likely that, barring some new economic shock, the worst of the price declines are behind us," said John Walsh, DataQuick president.

The statewide median sales price was $250,000 in the second quarter this year, down 7.4 percent from $260,000 a year earlier. In first-quarter 2009, when foreclosure activity peaked, the $227,000 median was down 39.5 percent from $375,000 a year earlier. The latter decline reflected not only steep home-price depreciation but very weak high-end sales amid robust sales of low-cost inland foreclosures.

Most of the loans going into default today are from the 2005-2007 period: the median origination quarter for defaulted loans is still third-quarter 2006. That has been the case for more than two years, indicating that weak underwriting standards peaked then.

Most of the loans made in 2006 are owned and/or serviced by institutions other than those that made the loans.

The most active lender "beneficiaries" in the formal foreclosure process last quarter were JP Morgan Chase (9,422), Wells Fargo (8,228) and Bank of America (7,601).

The "servicers" (or the Trustees in the formal foreclosure process) that pursued the highest number of defaults last quarter were ReconTrust Co (mostly for Bank of America and MERS), Quality Loan Service Corp (Bank of America), California Reconveyance Co (JP Morgan Chase), Cal-Western Reconveyance Corp (Wells Fargo) and NDEx West (Wells Fargo).

The filing of notices of default fell quarter-to-quarter and year-over-year across the home-price spectrum last quarter. However, the declines in NoDs were greatest in the least expensive communities, where foreclosure activity has been most severe in recent years.

Zips codes with median sale prices this year below $200,000 saw second-quarter defaults drop 18.6 percent from the prior quarter and drop 23.9 percent from a year earlier. For zip codes with $200,000-to-$800,000 medians, default filings fell 16.9 percent quarter-to-quarter and 18.7 percent year-over-year. In the market's high end, zips with medians over $800,000, mortgage defaults dropped 15.0 percent quarter-to-quarter and 10.7 percent year-over-year.

However, the concentration of mortgage defaults remains far greater in lower-cost neighborhoods: Last quarter, zips with sub-$200,000 median sale prices collectively saw 8.7 default notices filed per 1,000 homes. That compares with 6.4 filed per 1,000 homes for all zip codes statewide, and just 2.4 default notices filed per 1,000 homes in zips with $800,000-plus medians.

On primary mortgages, homeowners were a median six months behind on their payments when the lender filed the Notice of Default last quarter. Those borrowers owed a median $16,525 on a median $324,413 mortgage.

On home equity loans and lines of credit that went into default last quarter, borrowers owed a median $4,382 on a median $65,000 credit line. However the amount of the credit line that was actually in use cannot be determined from public records.

San Diego-based 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 56,633 default notices were filed last quarter, they involved 55,153 homes because some borrowers were in default on multiple loans (e.g. a primary mortgage and a line of credit).

Mortgages were least likely to go into default in San Francisco, Marin and San Mateo counties. The probability was highest in Kings, Sutter and Yuba counties.

Trustees Deeds recorded (TDs), or the actual loss of a home to foreclosure, totaled 42,465 during the second quarter. That was down 1.4 percent from 43,052 for the prior quarter, and down 10.9 percent from 47,669 for second-quarter 2010. The all-time peak was 79,511 in third-quarter 2008.

Last quarter's trustees deeds total was the lowest since 35,431 were filed in fourth quarter 2010, and the second-lowest since fourth quarter 2007, when 31,676 were filed.

In the prior real estate cycle, Trustees Deeds peaked at 15,418 in third-quarter 1996. The all-time low in DataQuick's TD statistics, which go back to 1988, was 637 in second quarter 2005, DataQuick reported.

The decline in foreclosures last quarter was most pronounced in higher-cost areas. California zip codes with $800,000-plus median sale prices this year saw foreclosures drop 8.7 percent quarter-to-quarter drop and 34.3 percent year-over-year. In zips with sub-$200,000 medians, foreclosures dipped 2.1 percent quarter-to-quarter and dropped 12.9 percent year-over-year.

Just as with mortgage defaults, foreclosure concentrations remain far greater in lower-cost neighborhoods: Zips with sub-$200,000 medians logged nine foreclosures per 1,000 homes last quarter. That compares with three foreclosure per 1,000 homes across all zip codes statewide, and one foreclosures per 1,000 homes for the group of zips with $800,000-plus medians.

There are 8.6 million houses and condos in the state.

Foreclosure resales accounted for 35.6 percent of all California resale activity last quarter. That was down from 39.8 percent the prior quarter and up a tad from 35.5 percent a year earlier. Foreclosure resales peaked at 57.8 percent in the first quarter of 2009. Foreclosure resales varied significantly by county last quarter, from 8.7 percent in San Francisco County to 57.4 percent in Madera County.

Short sales - transactions where the sale price fell short of what was owed on the property - made up an estimated 17.4 percent of statewide resale activity last quarter. That was down slightly from an estimated 18.1 percent the prior quarter and 18.9 percent a year ago. Two years ago, in second quarter 2009, short sales made up an estimated 12.6 percent of all resales.

On average, homes foreclosed on last quarter took 10 months to wind their way through the formal foreclosure process, beginning with an NoD. That's up from 9.1 months in the prior quarter and 9.1 months a year earlier. The increase could reflect, among other things, lender backlogs and paperwork problems, legal and regulatory challenges and extra time needed to pursue loan modifications and short sales.

At formal foreclosure auctions held statewide last quarter, an estimated 28.3 percent of the foreclosed properties were bought by investors or others who don't appear to be lender or government entities. That was up from an estimated 23.6 percent the previous quarter and 25.5 percent a year earlier, DataQuick reported.

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

County/Region 2010Q2     2011Q2  Yr/Yr%
       
Los Angeles              13,045       11,250    -13.8%
Orange                    4,313        3,705    -14.1%
San Diego                 5,458        4,158    -23.8%
Riverside                 7,266        5,534    -23.8%
San Bernardino            5,945        4,334    -27.1%
Ventura                   1,346        1,133    -15.8%
Imperial                    375          270    -28.0%
SoCal                    37,748       30,384    -19.5%
       
San Francisco               431          402      -6.7%
Alameda                   2,615        2,030    -22.4%
Contra Costa              3,139        2,552    -18.7%
Santa Clara               2,313        1,793    -22.5%
San Mateo                   914          732    -19.9%
Marin                       307          279      -9.1%
Solano                    1,376        1,185    -13.9%
Sonoma                      916          738    -19.4%
Napa                        220          182    -17.3%
Bay Area                 12,231        9,893    -19.1%
       
Santa Cruz                  298          245    -17.8%
Santa Barbara               499          487      -2.4%
San Luis Obispo             359          345      -3.9%
Monterey                    664          489    -26.4%
Coast                     1,820        1,566    -14.0%
       
Sacramento                4,050        3,397    -16.1%
San Joaquin               2,093        1,675    -20.0%
Placer                    1,058          849    -19.8%
Kern                      2,008        1,485    -26.0%
Fresno                    1,831        1,612    -12.0%
Madera                      409          284    -30.6%
Merced                      727          510    -29.8%
Tulare                      899          714    -20.6%
Yolo                        329          201    -38.9%
El Dorado                   433          377    -12.9%
Stanislaus                1,601        1,094    -31.7%
Kings                       161          184      14.3%
San Benito                  104           85    -18.3%
Yuba                        173          195      12.7%
Colusa                       41           35    -14.6%
Sutter                      239          217      -9.2%
Central Valley           16,156       12,914    -20.1%
       
Mountains*                  724          635    -12.3%
       
North Calif*              1,372       1,241      -9.5%
       
Statewide*      70,051       56,633    -19.2%

 includes additional counties

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

County/Region 2010Q2 2011Q2   Yr/Yr%
       
Los Angeles      7,300       6,733       -7.8%
Orange                 2,223       1,887      -15.1%
San Diego              3,315       2,763      -16.7%
Riverside              6,086       4,810      -21.0%
San Bernardino         4,698       4,083      -13.1%
Ventura                  745         697       -6.4%
Imperial                 319         274      -14.1%
SoCal     24,686      21,247      -13.9%
       
San Francisco            180         156      -13.3%
Alameda                1,418       1,317       -7.1%
Contra Costa           1,990       1,799       -9.6%
Santa Clara            1,081         991       -8.3%
San Mateo                369         328      -11.1%
Marin                    130         130        0.0%
Solano                 1,011        916       -9.4%
Sonoma                   487         495        1.6%
Napa                     131         129       -1.5%
Bay Area      6,797       6,261       -7.9%
       
Santa Cruz               161         191       18.6%
Santa Barbara            305         319        4.6%
San Luis Obispo          223         270       21.1%
Monterey                 560         425      -24.1%
Coast        1,249       1,205       -3.5%
       
Sacramento             3,230       3,160       -2.2%
San Joaquin            1,654       1,399      -15.4%
Placer                   992         641      -35.4%
Kern                   1,802       1,555      -13.7%
Fresno                 1,471       1,392       -5.4%
Madera                   326         298       -8.6%
Merced                   775         585      -24.5%
Tulare                   637         607       -4.7%
Yolo                     201         231       14.9%
El Dorado                272         393       44.5%
Stanislaus             1,421       1,199     -15.6%
Kings                    116         157       35.3%
San Benito                89          73      -18.0%
Yuba                     181         184        1.7%
Colusa                    33          40       21.2%
Sutter                   154         160        3.9%
Central Valley     13,354      12,074       -9.6%
       
Mountains*         516         525        1.7%
       
North Calif*      1,067       1,153        8.1%
       
Statewide*     47,669      42,465      -10.9%

* includes additional counties

Source: DataQuick

Media calls: Andrew LePage (916) 456-7157

Copyright 2011 DataQuick. All rights reserved.

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