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California Mortgage Defaults Down For Now

Wednesday, October 21, 2009

The number of mortgage default notices filed against California homeowners dropped last quarter compared with the prior three-month period, as lenders made an effort to modify and renegotiate more loans, according to a real estate information service.

MDA DataQuick reported a total of 111,689 default notices were sent out during the July-through-September period, down 10.3 percent from 124,562 for the prior quarter, and up 18.5 percent from 94,240 in the third quarter of 2008.

"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," said John Walsh, DataQuick president.

It appears the foreclosure process has moved one month forward during the past 12 months. 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,

"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.

Most foreclosure activity was still concentrated in affordable inland communities, but the foreclosure problem continued to slowly tread into more expensive areas. The state's most affordable sub-markets, which represent 25 percent of California'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, 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.

Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 50,013 during the third quarter, up 9.5 percent from the prior quarter, and down 37.1 percent from the third-quarter of 2008, which was the all-time peak. MDA DataQuick reported mortgages were least likely to go into default in San Francisco, Marin and Santa Cruz counties, while the probability was highest in Merced, San Joaquin, and Riverside counties.

In Santa Clara County, lenders sent 4,035 default notices to homeowners during the third quarter, up 43.40 percent from 2,814 sent during the third quarter of 2008. During the same period this year, there were 1,237 trustees deeds recorded, down 42.90 percent from the third quarter of 2008.

Foreclosure re-sales accounted for 42.8 percent of all California resale activity last quarter, down from 49.9 percent the prior quarter. A year ago, they accounted for 47.5 percent of re-sale activity. They peaked at 57.8 percent in the first quarter of this year. Foreclosure re-sales varied significantly by area last quarter, from 9.6 percent in San Francisco County to 70.2 percent in Merced County. Over the past year, California buyers have purchased an average of nearly 18,000 foreclosure re-sales a month.

Speaking at a Silicon Valley Association of REALTORS® meeting in Los Gatos this month, California Department of Real Estate Commissioner Jeff Davi estimated it's going to take two to three years to get through the REOs and foreclosures.

"We need to worry about how to get the REOs out of the vacant status to the occupied status, and get them in the hands of the consumers," Davi told REALTORS®.


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.

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