California Mortgage Defaults Drop to Four-Year Low

Mortgage defaults in California reached a four-year low at the end of last quarter, according to DataQuick.

Analysts said a more stable housing market and recent policy changes in the mortgage servicing industry are the main reasons for the latest decrease in state foreclosures.

Between April and June, there were 56,633 notices of default issued in the Golden State, 17% lower from the prior quarter and 19.2% less than 2Q 2010. This activity was the lowest since 2007 when 53,493 notices of default were recorded.

John Walsh, president of San Diego-based DataQuick, said he is not sure why defaults are down, but believes home prices play a major role.

“A lot of theories are being floated as to why the numbers are down including bank policy changes, legal challenges, politics, and holding properties back temporarily to not flood the market. The fact of the matter is that no one really knows, outside of lending and servicing industry insiders,” Walsh said. “One thing is certain: homeowner distress spreads fastest when home price declines are steepest. And now it appears likely that, barring some new economic shock, the worst of the price declines are behind us.”

The median sales price for a California home last quarter was $250,000, down 7.4% from the previous year.  DataQuick said the filing of notices of default fell quarter-over-quarter and year-over-year for every home price spectrum, but the majority of defaulting loans are taking place in the least expensive communities.

ZIP codes with median sale prices below $200,000 experienced a quarterly default drop of 18.6%, but saw nearly nine default notices filed for every 1,000 homes. The average default notices for all ZIP codes throughout the state is slightly more than six filings for every 1,000 homes and about two default notices for every 1,000 homes for properties priced greater than $800,000.

For areas that have home prices ranging from $200,000 to $800,000, there were16.9% fewer default filings quarter-over-quarter, while median home prices over $800,000 had a 15% drop in mortgage defaults from the previous quarter.

Mortgages were least likely to go into default in San Francisco, Marin and San Mateo counties, while the probability was highest in Kings, Sutter and Yuba counties, the data provider said.

According to DataQuick, most loans going into default today are from 2005 through 2007, which signify weak underwriting standards at the time of origination.

The most active lenders in the foreclosure process in 2Q 2011 were JPMorgan Chase with 9,422 loans, followed by Wells Fargo at 8,228 and Bank of America with 7,601.

DataQuick said the servicers that pursued the highest number of defaults last quarter were ReconTrust (mostly for Bank of America and MERS), Quality Loan Service Corp. (Bank of America), California Reconveyance (JPMorgan Chase), Cal-Western Reconveyance Corp. (Wells Fargo) and NDEx West (Wells Fargo).