California Mortgage Defaults at Three-Year Low

By:
Kirk Haverkamp | July 23, 2010

New mortgage defaults in California have fallen to their lowest level in three years, even as the number of homes actually lost to foreclosure continues to rise. 

California counties recorded just over 70,000 Notices of Default, the first stage in the foreclosure process, in the second quarter of 2010, according to figures reported this week by San Diego-based MDA DataQuick. It’s the lowest total reported since the second quarter of 2007 and represents the fifth consecutive quarter of declining default rates in the nation’s largest real estate market.
 
The figure is down almost half from the peak of 135,000 new defaults recorded in the first quarter of 2009, just after the collapse of the subprime mortgage market.
 
The improvement comes as home prices in major California markets have been strengthening over the past year, despite worsening unemployment throughout 2009. The state currently has the nation’s third-highest unemployment level, at 12.3 percent, though down somewhat since peaking at 13.2 percent in January.
 

Short sales, rising prices credited

 
John Walsh, DataQuick president, said the decline in new defaults was due in part to a willingness by lenders to allow at-risk borrowers to avoid foreclosure through short sales.
 
"Obviously, motivated sellers and accommodating lenders have played a part in bringing the default filings down, especially when it comes to short sales,” Walsh said. “Public policy has also been a factor. We also need to remember that prices have come up off bottom over the past year. If they continue to rise, fewer homeowners will find themselves under water, which is a significant factor in letting a home go."
 
Home prices have shown significant improvements in major California markets over the past year, outpacing the nation as a whole. According to the most recent Standard & Poor’s/Case-Shiller Home Price Indices, home prices in the San Francisco metropolitan area rose by 18.0 percent last year, followed by San Diego with an 11.7 percent gain and Los Angeles increasing 7.8 percent.
 
By contrast, the indices showed a national average annual increase of only 3.8 percent in the major metropolitan areas surveyed.
 

Foreclosures rising, but well below peak

 
The number of homes actually lost at the end of the foreclosure process rose significantly in the second quarter of the year, although remaining well below the all-time peak recorded just under two years ago. Nearly 48,000 Trustees Deeds, reflecting houses or condo units lost to foreclosure, were recorded in the second quarter of 2010, up 11.2 percent from the nearly 43,000 recorded in the first quarter and a 4.4 percent rise over the second quarter of 2009.
 
The all-time peak was 79,500 recorded in the third quarter of 2008. By comparison, there are an estimated 8.5 million houses and condominiums in California.
 
Homes lost to foreclosure appear to be selling fairly rapidly; DataQuick reports that 85 percent of all properties foreclosed on in the two-year period ending in March 2010 had been resold on the open market by the end of last month. Approximately one-quarter of those sales were to investors in the most recent quarter, with foreclosed properties accounting for 36 percent of all California resales in the second quarter of 2010.
 

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