April 23, 2013 DQNews.com
The number of California homeowners entering the foreclosure process plunged to the lowest level in more than seven years last quarter. The unusually sharp drop in the number of mortgage default notices filed by lenders stems mainly from rising home values, a strengthening economy and government efforts to reduce foreclosures, a real estate information service reported.
During first-quarter 2013 lenders recorded 18,567 Notices of Default (NoDs) on California houses and condos. That was down 51.4 percent from 38,212 during the prior three months, and down 67.0 percent from 56,258 in first-quarter 2012, according to San Diego-based DataQuick.
Last quarter’s number was the lowest since 15,337 NoDs were recorded in fourth-quarter 2005. NoDs peaked in first-quarter 2009 at 135,431. DataQuick’s NoD statistics go back to 1992.
“Foreclosure starts were already trending much lower late last year because of rising home prices, a stronger labor market and the settlement agreement between the government and some lenders. But it appears last quarter’s drop was especially sharp because of a package of new state foreclosure laws – the ‘Homeowner Bill of Rights’ – that took effect January 1. Default notices fell off a cliff in January, then edged up. In recent years we’ve seen temporary lulls in foreclosure activity after new laws kick in and lenders adjust. It’s certainly possible foreclosure starts will pick up at some point this year if lenders need to play a lot of catch-up,” said John Walsh, DataQuick president.
“Rising home prices will be key to the final mop-up of the foreclosure mess,” he added. “As values rise, fewer people owe more than their homes are worth, and more people can refinance into a more favorable loan. It also means more who fall on hard times can sell their homes for enough to pay off the loan.”
The median price paid for a California home last quarter was $297,000, up 22.7 percent from a year ago, DataQuick reported.
NoD filings fell in all home price categories last quarter. But mortgage defaults remained more concentrated in California’s most affordable neighborhoods. Zip codes with first-quarter 2013 median sale prices below $200,000 collectively saw 2.9 NoDs filed for every 1,000 homes in those zip codes. The ratio was 1.9 NoDs per 1,000 homes for zip codes with $200,000 to $800,000 medians, while there were 0.7 NoDs filed per 1,000 homes for the group of zips with medians above $800,000.
Most of the loans going into default are still 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 three years, indicating that weak underwriting standards peaked then.
On primary mortgages, California homeowners were a median 8.6 months behind on their payments when the lender filed the Notice of Default. The borrowers owed a median $14,380 on a median $310,000 mortgage.
On home equity loans and lines of credit in default, borrowers owed a median $4,971 on a median $68,099 credit line. The amount of the credit line that was actually in use cannot be determined from public records.
The most active “beneficiaries” in the formal foreclosure process last quarter were Wells Fargo (5,546), JP Morgan Chase (3,863) and Bank of America (2,565).
The trustees who pursued the highest number of defaults last quarter were Recontrust Co. (mainly for Bank of America and Bank of New York), Quality Loan Service Corp (Wells Fargo and others) and Trustee Corps (for Green Tree Servicing, JP Morgan Chase and others).
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 18,567 default notices were filed last quarter, they involved 18,010 homes because some borrowers were in default on multiple loans (e.g. a primary mortgage and a line of credit).
Among the state’s larger counties, loans were least likely to go into default last quarter in San Francisco, San Mateo, Santa Clara and Marin counties, based on an analysis of how many NoDs were filed for every 1,000 homes in existence. The probability was highest in Riverside, San Bernardino, Solano and San Joaquin counties. The analysis excluded counties with fewer than 50,000 homes.
Trustees Deeds recorded (TDs), or the finalized loss of a home to the formal foreclosure process, dropped to a six-year low last quarter. TDs totaled 13,591, down 35.7 percent from 21,127 foreclosures in the prior quarter, and down 55.1 percent from 30,261 foreclosures in first-quarter 2012. Last quarter’s foreclosure tally was the lowest for any quarter since first-quarter 2007, when 11,032 homes were foreclosed on. The all-time peak was 79,511 foreclosures in third-quarter 2008. The state’s all-time low was 637 in second-quarter 2005, DataQuick reported.
Just as with mortgage default filings, foreclosures remained far more concentrated in the state’s most affordable communities. Zip codes with first-quarter 2013 median sale prices below $200,000 collectively saw 2.9 homes foreclosed on for every 1,000 homes in existence. That compares with 1.2 foreclosures per 1,000 homes for zips with medians from $200,000 to $800,000, and 0.3 foreclosures per 1,000 homes in the group of zips with medians over $800,000.
On average, homes foreclosed on last quarter took 8.1 months to wind their way through the formal foreclosure process, beginning with an NoD. That’s down from an average of 8.9 months the prior quarter and down from 8.5 months a year earlier.
At formal foreclosure auctions held statewide last quarter, an estimated 47.6 percent of the foreclosed properties were bought by investors or others that don’t appear to be lender or government entities. That was up from an estimated 41.7 percent the previous quarter and up from 33.7 percent a year earlier, DataQuick reported.
Foreclosure resales – properties foreclosed on in the prior 12 months – accounted for 17.3 percent of all California resale activity last quarter. That was up slightly from 16.6 percent the prior quarter and down from 33.6 percent a year ago. Foreclosure resales peaked at 57.8 percent in first-quarter 2009. Among the state’s larger counties last quarter, foreclosure resales varied from 6.9 percent in San Francisco County to 29.9 percent in Tulare County.
Lenders’ shift toward short sales as a foreclosure alternative has helped lower foreclosure activity in recent years. Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 20.2 percent of the state’s resale market last quarter. That was down from an estimated 24.2 percent the prior quarter and 24.8 percent a year earlier. However, the estimated number (rather than percentage) of short sales last quarter dipped just 1.5 percent from first-quarter 2012.