California Foreclosure Starts Up from First Quarter

A steep rise in home values that resulted in a new wave of foreclosure starts in California during the second quarter was not enough to eliminate gains of recent years indicating the state's housing market recovery most likely will prevail.

San Diego-based DataQuick reported lenders filed 25,747 notices of default during the April-to-June period, up 38.7% from 18,568 for the previous quarter, but still 52.9% lower than the 54,615 reported in the second quarter of 2012.

Primarily due to a package of new state foreclosure laws included in California’s Homeowner Bill of Rights that took effect on Jan. 1, analysts said, foreclosure starts are at their second-lowest level in seven years, or the lowest quarterly total since the fourth quarter of 2005.

Since the second quarter of 2006, when 20,909 notices of default were recorded, foreclosure starts peaked in the first quarter of 2009 at 135,431.

According to DataQuick, whose NoD statistics go back to 1992, “policy and regulatory changes” have caused similar NoD filing decreases in other states across the nation where in recent years “foreclosure activity has sometimes plunged temporarily after a new law kicks in and the industry takes time to adjust.”

DataQuick president John Walsh argues that at this point in the cycle, market trends are quite simple math. “A foreclosure only makes sense when the home is worth less than what is owed on it,” meaning higher home values translate into fewer underwater homeowners.

The median price paid for a California home was $344,000 for 2Q13 up 14.7% from $300,000 for 1Q13 and 27.4% from $270,000 in 2Q12.

DataQuick figures show the median price hit bottom at $235,000 in the second quarter of 2009 after peaking in the second quarter of 2007 at $485,500.

Loans originated during the 2005-2007 period, especially in 2006, still represent the bulk of mortgages going into default. It has been the case for four years, Walsh said, indicating that weak underwriting standards peaked then.

California homeowners were a median 7.6 months behind on their primary mortgage payments when the lender filed the notice of default and owed roughly $16,155 on a median $312,000 mortgage.

Geographically, mortgage defaults and foreclosures remained far more concentrated in the state’s most affordable neighborhoods where median sale prices are below $200,000.

Among the state's larger counties, loans were least likely to go into default in San Francisco, Santa Clara and San Mateo counties and most likely to into default in Solano, Fresno and Riverside counties.