CA Default Notices Fall, Renegotiations Rise

There is some good news in California.

The number of default notices filed against homeowners in the sunny state fell in the third quarter compared with the prior three-month period, the result of lenders’ evolving foreclosure policies and an uptick in the number of mortgages being renegotiated, according to MDA DataQuick in San Diego, a division of MDA Lending Solutions, which monitors real estate activity nationwide.

A total of 111,689 default notices were sent out during the July-September period. That was down 10.3% from 124,562 for the second quarter, and up 18.5% from 94,240 in third quarter of 2008. These notices involved 108,372 homes because some borrowers in question were currently in default on multiple loans, including primary mortgages and home-equity loans.

“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,” said John Walsh, DataQuick 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. Trying to keep motivated, employed homeowners in their homes might be the most cost-efficient way to stem losses.”

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 $12,665 on a median $343,200 mortgage.

On home-equity loans and lines of credit in default, borrowers owed $3,948 on a median $62,800 credit line.

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.

Lenders that originated the most loans that went into default in the third 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. DataQuick said the 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 74%, Ownit Mortgage 69.5%, BNC Mortgage 61.4%, Argent Mortgage 60% and First Franklin 59.4%. While these and most other subprime lenders are long gone, their loans were bundled, resold and now live on as “troubled assets,” said Mr. Walsh.

“Indeed, many, if not most, of the loans made in 2006 are owned and/or serviced by lending institutions other than those that made the loans.

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

“There’s a batch of truly nasty loans that were made in mid-2006. 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."

With 8.5 million houses and condos in the state, foreclosure resales in California continued to decline as a market factor, accounting for 42.8% of all California resale activity in the third quarter.

Of the homes foreclosed on statewide in an 18-month period ending this July, about 82% have resold on the open market, while 18%, or more than 57,000 homes, have not. Over the past year California buyers have snapped up an average of nearly 18,000 foreclosure resales a month, DataQuick reported.

A year ago the percentage of forecloses that had not yet resold was nearly twice as great, while the number of unsold foreclosures from the 18-month period ending in July 2008 was about 50% higher than it is now.