While up from the first quarter, the number of California homeowners entering the foreclosure process was at its second-lowest level in seven years last quarter, largely the result of a steep rise in home values, a real estate information service reported. Lenders filed 25,747 Notices of Default (NoDs) during the April-to-June period. That was up 38.7 percent from 18,568 for the previous quarter, and down 52.9 percent from 54,615 for second-quarter 2012, according to San Diego-based DataQuick.
The 18,568 NoDs filed in the first quarter of this year marked the lowest quarterly total since fourth-quarter 2005, when 15,337 NoDs were recorded. In addition to less distress in the housing market pipeline, this year’s remarkably low first-quarter number mainly reflected policy and regulatory changes.
NoD filings plummeted early this year as a package of new state foreclosure laws – the “Homeowner Bill of Rights” – took effect on Jan. 1. In California and other states in recent years foreclosure activity has sometimes plunged temporarily after a new law kicks in and the industry takes time to adjust.
Setting aside this year’s first quarter, last quarter’s NoD tally was the lowest since second-quarter 2006, when 20,909 NoDs were recorded. California NoDs peaked in first-quarter 2009 at 135,431. DataQuick's NoD statistics go back to 1992.
“At this point in the cycle, it’s fairly straightforward to see what’s going on. Just do the math – it’s not calculus, it’s 4th grade arithmetic," said John Walsh, DataQuick president. "A foreclosure only makes sense when the home is worth less than what is owed on it. As home values rise, fewer homeowners owe more on their homes than the homes are worth."
The median price paid for a California home was $344,000 during the second quarter, up 14.7 percent from $300,000 for the prior quarter and up 27.4 percent from $270,000 in second-quarter 2012. The median peaked in second-quarter 2007 at $485,500 and hit bottom at $235,000 in second-quarter 2009, DataQuick reported.
Mortgage defaults remained far more concentrated in the state’s most affordable neighborhoods. Zip codes with second-quarter 2013 median sale prices below $200,000 collectively saw 4.2 NoDs filed for every 1,000 homes in those zip codes. The ratio was 2.8 NoDs per 1,000 homes for zip codes with $200,000-to-$800,000 medians, while there were 1.1 NoDs filed per 1,000 homes for the group of zips with medians above $800,000.
Most of the loans going into default are from the 2005-2007 period. The median origination quarter for defaulted loans is still third-quarter 2006. That has been the case for four years, indicating that weak underwriting standards peaked then.
On primary mortgages, California homeowners were a median 7.6 months behind on their payments when the lender filed the Notice of Default. The borrowers owed a median $16,155 on a median $312,000 mortgage.
On home equity loans and lines of credit in default, borrowers owed a median $5,307 on a median $68,332 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 (3,969), JP Morgan Chase (3,801) and Nationstar (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 NDEx West (Wells Fargo, OneWest 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 25,747 default notices were filed last quarter, they involved 24,999 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, Santa Clara and San Mateo counties. The probability was highest in Solano, Fresno and Riverside counties.
Trustees Deeds recorded (TDs), or the finalized loss of a home to the formal foreclosure process, totaled 9,840 last quarter, down 27.6 percent from 13,592 the prior quarter and down 55.0 percent from 21,851 in second-quarter 2012. Last quarter marked the first time there were fewer than 10,000 foreclosures in a quarter since fourth-quarter 2006, when there were 6,078. 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.
Foreclosures remained most concentrated in the state's most affordable communities. Zip codes with second-quarter 2013 median sale prices below $200,000 collectively saw 2.2 homes foreclosed on for every 1,000 homes in existence. That compares with 1.0 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 9.1 months to wind their way through the formal foreclosure process, beginning with an NoD. That's up from an average of 8.1 months the prior quarter and up from 7.7 months a year earlier.
At formal foreclosure auctions held statewide last quarter, an estimated 54.2 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 47.4 percent the previous quarter and up from 39.2 percent a year earlier, DataQuick reported.
Foreclosure resales - properties foreclosed on in the prior 12 months - accounted for 11.6 percent of all California resale activity last quarter. That was down from a revised 17.1 percent the prior quarter and down from 27.8 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 2.8 percent in San Francisco County to 28.2 percent in Madera County.
Short sales made up an estimated 16.6 percent of the state's resale market last quarter. That was down from an estimated 21.4 percent the prior quarter and 24.0 percent a year earlier.