The number of California homes entering the formal foreclosure process dropped in the second quarter to its lowest level since early 2007. The decline stems from a combination of factors, including an improving housing market, the gradual burning off of the most egregious mortgages originated from 2005 through 2007 and the growing use of short sales, a real estate information service reported.
A total of 54,615 notices of default (NODs) were recorded on houses and condos during the April-though-June period. That was down 2.9 percent from 56,258 for the prior three months, and down 3.6 percent from 56,633 in second-quarter 2011, according to San Diego-based DataQuick.
Last quarter’s 54,615 was the lowest since 53,943 NOD were recorded in second-quarter 2007. NODs peaked in first quarter 2009 at 135,431. DataQuick’s NOD statistics go back to 1992. The year-over-year drop was most noticeable in the Bay Area, where the 8,572 NOD filings marked a 13.4 percent drop from 9,893 a year ago.
“The foreclosure process has always been the sanitation department of the housing sector. It’s where financial distress is processed. The question is whether these lower NOD numbers mean that there’s less distress to process, or if we’re just seeing distress get processed at a slower pace,” said John Walsh, DataQuick president.
“Obviously the economy has been on the mend, however slowly. But because housing is widely seen by economists as the biggest drag on growth, some interesting alternatives to the foreclosure process are being discussed, such as the use of eminent domain to buy and restructure mortgages. Needless to say, we’re all watching closely,” he said.
The most active lenders in the formal foreclosure process last quarter were Bank of America (8,299), JP Morgan (7,497), Wells Fargo (7,131), Aurora Bank (1,984) and Bank of New York (1,838).
The trustees who pursued the highest number of defaults last quarter were ReconTrust Co. (mostly for Bank of America and Bank of New York), Quality Loan Service Corp. (Bank of America), Cal-Western Reconveyance Corp. (Wells Fargo) and NDEx West (Wells Fargo).
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 three years, indicating that weak underwriting standards peaked then.
NOD filings continued to fall last quarter in communities across the home price spectrum. However, mortgage defaults remained far more concentrated in California’s most affordable neighborhoods. ZIP codes with second quarter 2012 median sale prices below $200,000 collectively saw nearly 9 NODs filed for every 1,000 homes in those ZIP codes, while the ratio was 5.6 NODs filed per 1,000 homes for ZIP codes with $200,000 to $800,000 medians. For the group of ZIP codes with median sale prices above $800,000, there were 2.2 NODs filed per 1,000 homes.
On primary mortgages, California homeowners were a median eight months behind on their payments when the lender filed the notice of default. The borrowers owed a median $17,864 on a median $317,019 mortgage.
Although 54,615 default notices were filed last quarter, they involved 53,664 homes because some borrowers were in default on multiple loans (e.g. a primary mortgage and a line of credit).
Of the state’s larger counties, mortgages were least likely to go into default in San Francisco, Marin and San Mateo counties. The probability was highest in Tulare, San Joaquin and Sacramento counties.
Trustees Deeds recorded (TDs), or the finalized loss of a home to the formal foreclosure process, totaled 21,851 during the first quarter. That was down 27.8 percent from 30,261 for the prior quarter, and down 48.5 percent from 42,465 for second-quarter 2011.
Last quarter’s TDs total was the lowest for any quarter since the second quarter of 2007, when 17,458 were filed.
The all-time peak for TDs was 79,511 in third-quarter 2008. The state’s all-time low was 637 in the second quarter of 2005, DataQuick reported.
Just as with NOD filings, TDs, or foreclosures, remained far more concentrated in the state’s most affordable neighborhoods. ZIP codes with second quarter 2012 median sale prices below $200,000 collectively saw 4.3 homes foreclosed on for every 1,000 homes in existence. That compares with 1.9 foreclosures per 1,000 homes for ZIP codes with medians between $200,000 and $800,000, and less than one – 0.5 – foreclosure per 1,000 homes in the group of ZIP codes with $800,000-plus medians.
While 1.45 million of the state’s 8.7 million houses and condos have been involved in a foreclosure proceeding the past five years, 835,000 went through the whole foreclosure process. The other 615,000 were either sold or the payments were brought current.
Foreclosure resales accounted for 27.9 percent of all California resale activity last quarter, down from a revised 33.6 percent the prior quarter and 35.6 percent a year ago. It peaked at 57.8 percent in the first quarter of 2009. Foreclosure resales varied significantly by county last quarter, from 7.3 percent in San Francisco County to 47.4 percent in Madera County.
Short sales — transactions where the sale price fell short of what was owed on the property — made up an estimated 18 percent of statewide resale activity last quarter. That was down from an estimated 20.1 percent the prior quarter and up from 17.4 percent a year earlier. In terms of the number of short sales, last quarter’s estimated 20,141 was up 13 percent from the prior quarter and up 10.2 percent from a year earlier.
On average, homes foreclosed on last quarter took 7.7 months to wind their way through the formal foreclosure process, beginning with an NOD. That’s down from an average of 8.5 months the prior quarter and down from 10 months a year earlier.
At formal foreclosure auctions held statewide last quarter, an estimated 40.1 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 33.4 percent the previous quarter and up from 28.3 percent a year earlier, DataQuick reported.