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Temporary Drop in California Foreclosure Activity

January 27, 2009

La Jolla, CA.--The number of mortgage default notices filed against California homeowners fell last quarter to its lowest level in more than a year, the temporary result of a procedural change that took effect in September, a real estate information service reported.

Lending institutions sent homeowners 75,230 default notices during the October-through-December period. That was down 20.2 percent from 94,240 for the prior three months, and down 7.7 percent from 81,550 for fourth-quarter 2007, according to MDA DataQuick.

Recorded default notices peaked in second-quarter 2008 at 121,673.

Last year lenders filed about 40,000 "notices of default" monthly from March through August. In September default recordings plunged to 14,995 as a new state law took effect requiring lenders to take added steps to keep troubled borrowers in their homes.

While recordings were back up to 39,993 in December it's unclear whether lenders were mainly playing catch-up, or whether a new wave of foreclosure activity was building.

"No one expected defaults to stay at the much lower levels we saw immediately after the new law took effect last fall. The bigger question is whether or not the housing market has hit a low and is dragging along bottom, or if the markets that so far have remained unaffected by the foreclosure problem are due for a fall. With today's atypical market trends, it's impossible to predict," said John Walsh, DataQuick president.

Most foreclosure activity was still concentrated in affordable inland areas where the availability of so-called subprime financing fueled a buying and refinancing frenzy in 2005/2006. Those sub-markets, which represent about 25 percent of the state's housing stock, account for more than 50 percent of the default activity. That ratio is the same now as a year ago, indicating that the problem has not yet migrated into more established, expensive markets.

Most of the loans that went into default last quarter were originated between October 2005 and January 2007. The median age was 29 months, up from 21 months a year earlier. More than three million home loans were originated in 2006. That dropped to two million in 2007, and 1.1 million last year.

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 $12,867 on a median $351,000 mortgage.

On home equity loans and lines of credit, borrowers owed a median $4,267 on a median $60,000 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 75,230 default notices were filed last quarter, they involved 73,575 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 San Mateo counties – the historical norm. The probability was highest in Merced, Stanislaus and San Joaquin counties.

Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 46,183 during the fourth quarter. That's 41.9 percent below 79,511 for the prior quarter, and up 45.8 percent from 31,676 for fourth-quarter 2007. In the last real estate cycle, Trustees Deeds peaked at 15,418 in third-quarter 1996. The all-time low was 637 in the second quarter of 2005.

There are 8.5 million houses and condos in the state. For 2008 as a whole, 236,231 homes, or 2.8 percent of California's housing stock, was foreclosed on, MDA DataQuick reported.

Foreclosure resales have emerged as a significant market factor, accounting for 55.1 percent of all California resale activity last quarter. A year ago it was 19.0 percent. Foreclosure resales varied significantly by area, from 10.7 percent in San Francisco County to 79.2 percent in Merced County.

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