California Mortgage Defaults Trend Down Again

Default notices in California fell 10% in the third quarter as compared to the second quarter, reports MDA DataQuick. In total, 111,689 default notices were sent out from July through September. In the second quarter, 124,562 default notices were recorded in the state.

The number of recorded default notices peaked in the first quarter of this year, at 135,431, although that number was inflated by deferred activity from the prior four months, DataQuick says.

‘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," says John Walsh, the firm's president. "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."

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

‘There's a batch of truly nasty loans that were made in mid-2006," Walsh says. "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."

The lenders that originated the most loans that went into default last quarter were Countrywide (7,583), Washington Mutual (5,146) and Wells Fargo (4,425).

Along with Bank of America (1,979) and World Savings (4,237), they were also the most active lenders in the second half of 2006. Last quarter's default rate on loans originated in the second half of 2006 ranged from 1.7% for Bank of America to 11.9% for World Savings.

Smaller subprime lenders had far higher default rates for that period: ResMAE Mortgage was at 73.9%; Ownit Mortgage, 69.5%; BNC Mortgage, 61.4%; Argent Mortgage, 59.9%; and First Franklin, 59.4%.

The servicers pursuing the highest number of delinquencies last quarter were ReconTrust Co., Quality Loan Service Corp. and Cal-Western Reconveyance Corp., DataQuick adds.

While most foreclosure activity was still concentrated in affordable inland communities, the foreclosure problem continued to slowly migrate into more expensive areas. The state's most affordable submarkets, which represent 25% of the state's housing stock, accounted for 52.2% of all default activity a year ago. In the third quarter, the default activity in these submarkets fell to 42.9%.

On primary mortgages, California 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. However the amount of the credit line that was actually in use cannot be determined from public records.

Mortgages were least likely to go into default in San Francisco, Marin and Santa Cruz counties. The probability was highest in Merced, San Joaquin and Riverside counties.

Trustees deeds recorded, or the actual loss of a home to foreclosure, totaled 50,013 during the third quarter. That was up 9.5% from 45,667 for the second quarter, and down 37.1% from 79,511 for the third quarter 2008, which was the all-time peak.

Foreclosure resales continued to decline as a market factor, accounting for 42.8% of all California resale activity last quarter. It was 49.9% the quarter before and 47.5% a year ago.

Of the homes foreclosed on statewide in an 18-month period ending in July, about 82% have resold on the open market, while 18%, or more than 57,000 homes, have not. Of those that have not resold, it cannot be determined from public records what portion is currently being marketed for sale, as opposed to, among other things, being used as rentals or being left vacant and not for sale, DataQuick notes.



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