Tighter lending standards and flat or falling prices, as well as slow sales in many areas in the state, have led to a continued rise in California foreclosure activity, a real estate information service reported.
According to DataQuick Information Systems, lenders filed 53,943 Notices of Default during the April-through-June period, up 15.4 percent from the previous quarter, and up 158 percent from 20,909 for second-quarter 2006. An average of 34,172 NoDs have been filed quarterly since 1992, when DataQuick's NoD statistics begin. Notices of Default are recorded at county recorders offices and mark the first step of the formal foreclosure process.
"A lot of the loans that went bad last quarter were made at or just beyond the cycle's peak, between summer '05 and summer '06. Appreciation rates for most of that period were in the double digits and lenders let many households stretch their finances to the max, and beyond. It's that pool of 'beyond' mortgages that the market is working its way through," said Marshall Prentice, DataQuick's president.
Most of the loans that went into default last quarter were originated between July 2005 and August 2006. The use of adjustable-rate mortgages for primary purchase home loans peaked at 77.8 percent in May 2005 and has since fallen.
On primary mortgages statewide, homeowners were a median five months behind on their payments when the lender started the default process. The borrowers owed a median $11,126 on a median $342,000 mortgage.
On lines of credit, homeowners were a median eight months behind on their payments. Borrowers owed a median $3,457 on a median $67,121 credit line. However the amount of the credit line that was actually in use cannot be determined from public records.
The default numbers reflect wide regional differences. The second-quarter numbers were a record in Riverside, Contra Costa, Sacramento and most Central Valley counties. In Los Angeles County it was still less than half the first-quarter 1996 peak, reflecting the depth of the recession in the mid-1990s, as well as the relative strength of today's housing market.
On a loan-by-loan basis, mortgages were least likely to go into default in Marin, San Francisco and San Mateo counties. The likelihood was highest in San Joaquin, Merced and Riverside counties.
During the second quarter of this year, notices of default increased 140.6 percent in Santa Clara County, compared with the second quarter of 2006.
"The foreclosures are up quite a bit in Santa Clara County, but many of these appear to be the purchasers of homes just prior to rates rising," explained Mark Burns, president of the Silicon Valley Association of REALTORS® (SILVAR). "The option to purchase with no money down, or very little down was easy and very appealing for those who expected to have to wait to save at least 10 percent or more to put down. Good planning of household budgets, reserves for potential job loss, and other 'common sense' thinking may have been pushed aside in the rush to own a home, as it is quite often even today.
"The 'local' factors must be considered when reading about statewide or national trends on price drops and foreclosure rates. Unemployment rates and job creation are very positive here and have been for many decades. The economy throughout our region is very strong and continues to grow," said Burns.
DataQuick reported the median price paid for a California home purchased between July 2005 and August 2006 was $460,000. Of those homes, the median price paid for those that went into default last quarter was $445,500, mostly because of low default rates at the high end.
Roughly half, 54.6 percent, of the homeowners in default emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe. A year ago it was 88.0 percent. The increased portion of homes lost to foreclosure reflects the slow real estate market, as well as the number of homes bought during the height of the market with multiple-loan financing. In selling a home, all loans must be paid off, which is not the case in the formal foreclosure process, where second mortgages and lines of credit are most often written off.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.