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California Foreclosure Notices at 10-Year High

April 17, 2007

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Like a canary in a coal mine, California may be sending the mortgage industry an urgent message. Foreclosure notices sent to the state's homeowners in the first quarter of 2007 jumped to their highest level in almost ten years, according to DataQuick, a real estate information service.

Lending institutions filed 46,760 Notices of Default (NoDs) during the January-to-March period. That was up by 23.1 percent from a revised 37,994 for the previous quarter, and up 148.0 percent from 18,856 for first-quarter 2006, according to DataQuick Information Systems.

Meanwhile, federal regulators reminded lenders that they should work with consumers who fall behind. There is no need to instigate immediate foreclosure proceedings, the regulators said. Institutions that bend the rules to keep consumers in their homes will not be penalized, the agencies said.

Last quarter's default level was the highest since 47,912 NoDs were recorded in California in the second-quarter of 1997. Defaults peaked in first quarter 1996 at 61,541. An average of 33,847 NoDs have been filed quarterly since 1992, when DataQuick's NOD statistics begin.

"Defaults tend to happen after a certain length of time and today's activity reflects a peak in the number of home loans made back in the summer of 2005," said Marshall Prentice, DataQuick's president.

"Additionally, the loans being made back then were riskier because of the subprime activity, as well as higher appreciation rates. It's easier to make a loan when the security for that loan is going up in value, than when values are flat."

Most of the loans that went into default last quarter were originated between April 2005 and May 2006. The median age was 15 months. Loan originations peaked in August 2005. Adjustable-rate mortgage use for primary purchase home loans peaked at 77.8% in May 2005 and has come down since.

On primary mortgages, homeowners were a median five months behind on their payments when the lender started the default process. The borrowers owed a median $10,784 on a median $331,200 mortgage.

On lines of credit, homeowners were a median six months behind on their payments. Borrowers owed a median $3,580 on a median $60,000 credit line. However the amount of the credit line that was actually in use cannot be determined from public records.

The default numbers reflect wide regional differences. The first-quarter numbers were a record in San Diego, Sacramento and Contra Costa counties. In Los Angeles County it was almost 60 percent below the first-quarter 1996 peak, reflecting the depth of the recession in the mid-1990s as well as relative strength in today's market.

On a loan-by-loan basis, mortgages were least likely to go into default in Marin, San Francisco and San Mateo counties. The likelihood was highest in Sacramento, Riverside and San Joaquin counties.

Most homeowners emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe. Still, about 40 percent of homeowners who found themselves in default last year actually lost their homes to foreclosure in the first quarter, according to the report. A year ago it was nine percent.

Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 11,033 during the first quarter, up 81.5 percent from 6,078 for the previous quarter, and up 802.1 percent from 1,223 for last year's first quarter. Foreclosure sales peaked at 15,418 in third-quarter 1996, and hit a low of 637 in the second quarter of 2005.

There are just over eight million houses and condos in California, according to the firm.

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