The number of California homeowners entering the foreclosure process fell last quarter to the second-lowest level in seven and a half years. The drop-off is the result of a stronger job market, home price appreciation, and a variety of government foreclosure avoidance efforts, a real estate information service reported. Lenders filed 20,314 Notices of Default (NoDs) during the July-through-September period. That was down 21.1 percent from 25,747 during the previous quarter, and down 58.6 percent from 49,026 in third-quarter 2012, according to San Diego-based DataQuick.
Last quarter’s NoDs were the lowest since 18,568 were filed in the first quarter of this year, and the second-lowest since 18,856 were filed in first-quarter 2006.
NoD filings plummeted in the first quarter of this year, and especially in the month of January, as a package of new state foreclosure laws – the “Homeowner Bill of Rights” – took effect on Jan. 1. Later in the first quarter and then in the second quarter NoDs trended higher. In California and other states in recent years foreclosure activity has sometimes plunged temporarily after a new law kicked in and the industry took time to adjust.
“Cleanup of the foreclosure mess is ongoing, but it’s difficult to imagine a huge new wave. We still get asked about the long-feared ‘shadow inventory’ of distressed properties that some people predicted would trigger another big surge in foreclosures. Such warnings, which go back years, often reflected a worst-case scenario and didn’t account for the breadth and depth of the government’s eventual intervention in the crisis. Lots of legal, regulatory and political hurdles popped up, slowing the foreclosure rate. Then the economy stabilized and home prices started rising,” said John Walsh, DataQuick president.
“Still, it’s certainly possible that we could see foreclosure activity edge higher again,” he added. “It will depend on the economy and how lenders manage their remaining distressed properties, and their success with mortgage modifications.”
The sharp rise in home values over the last year has reduced the number of Californians who owe more than their homes are worth. That drives down the number of households vulnerable to foreclosure, given that if they can’t make their mortgage payments they can usually sell their homes or refinance.
The median price paid for a California home was $360,000 during the third quarter, up 4.0 percent from $346,000 the prior quarter and up 26.3 percent from $285,000 in third-quarter 2012.
As has been the case for years, mortgage defaults remained far more concentrated in the state’s most affordable neighborhoods last quarter. Zip codes with third-quarter 2013 median sale prices below $200,000 collectively saw 3.4 NoDs filed for every 1,000 homes in those zip codes. The ratio was 2.2 NoDs per 1,000 homes for zip codes with $200,000-to-$800,000 medians, while there were 0.9 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. Last quarter the median origination quarter for defaulted loans was fourth-quarter 2006. Prior to last quarter the median origination quarter for defaulted loans had been third-quarter 2006 for four years, indicating that weak underwriting standards peaked then.
On primary mortgages, California homeowners were a median 8.2 months behind on their payments when the lender filed the Notice of Default. The borrowers owed a median $16,327 on a median $300,000 mortgage.
On home equity loans and lines of credit in default, borrowers owed a median $5,342 on a median $64,000 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 (4,134), JP Morgan Chase (2,144) and US Bank (1,187).
The trustees pursuing the highest number of defaults last quarter were Quality Loan Service Corp. (for Wells Fargo, CitiMortgage, US Bank, Bank of New York and others), Sage Point Lender Services (for Nationstar Mortgage, CitiMortgage, Deutsche Bank, US Bank and others) and Trustee Corps (for JP Morgan Chase, OneWest Bank, Bank of America 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 20,314 default notices were filed last quarter, they involved 19,799 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, San Mateo, Marin and San Luis Obispo counties. The probability was highest in Riverside, San Bernardino, San Joaquin, Kings and Yuba counties. The analysis is based on the number of NoDs filed for every 1,000 homes in those counties.
Trustees Deeds recorded (TDs), or the final loss of a home to foreclosure, totaled 8,030 last quarter – the lowest for any quarter since fourth-quarter 2006, when lenders foreclosed on 6,078 homes. Last quarter’s Trustees Deed total fell 18.4 percent from 9,840 the prior quarter and fell 65.0 percent from 22,949 in third-quarter 2012.
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 were again most concentrated in the state's most affordable communities. Zip codes with third-quarter 2013 median sale prices below $200,000 collectively saw 2.0 homes foreclosed on for every 1,000 homes in existence. That compares with 0.8 foreclosures per 1,000 homes for zips with medians from $200,000 to $800,000, and 0.2 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 the same as the prior quarter and up from 7.9 months a year ago.
At formal foreclosure auctions held statewide last quarter, an estimated 48.2 percent of the foreclosed properties were bought by investors or others that don't appear to be lender or government entities. That was down from an estimated 54.1 percent the previous quarter and up from 39.4 percent a year earlier, DataQuick reported.
Foreclosure resales - properties foreclosed on in the prior 12 months - accounted for 7.7 percent of all California resale activity last quarter. That was down from a revised 11.5 percent the prior quarter and down from 20.0 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 2.0 percent in Santa Clara County to 22.3 percent in Kings County.
Short sales - transactions where the sale price fell short of what was owed on the property - made up an estimated 13.5 percent of the state's resale market last quarter. That was down from an estimated 16.5 percent the prior quarter and 26.1 percent a year earlier.