The number of California homes entering the foreclosure process declined again during fourth quarter 2009 amid signs that the worst may be over in hard-hit entry-level markets, while slowly spreading to more expensive neighborhoods. There are mixed signals for 2010: It's unclear how much of the drop in mortgage defaults is due to shifting market conditions, and how much is the result of changing foreclosure policies among lenders and loan servicers, a real estate information service reported.

A total of 84,568 Notices of Default were recorded at county recorder offices during the October-to-December period. That was down 24.3 percent from 111,689 for the prior quarter, and up 12.4 percent from 75,230 in fourth-quarter 2008, according to San Diego-based MDA DataQuick.

NODs reached an all-time high in first-quarter 2009 of 135,431, a number that was inflated by activity put off from the prior four months. In the second quarter of last year, NODs totaled 124,562. The low of recent years was in the third quarter of 2004 at 12,417, when housing market annual appreciation rates were around 20 percent.

Clearly, many lenders and servicers have concluded that the traditional foreclosure process isn't necessarily the best way to process market distress, and that losses may be mitigated with so-called short sales or when loan terms are renegotiated with homeowners.

While many of the loans that went into default during fourth quarter 2009 were originated in early 2007, the median origination month for last quarter's defaulted loans was July 2006, the same month as during the prior three quarters. The median origination month during the last quarter of 2008 was June 2006. This means the foreclosure process has moved forward through one month of bad loans during the past 12 months.

Mid 2006 was clearly the worst of the 'loans gone wild period and it's taking a long time to work through them. We're also watching foreclosure activity start to move into more established mid-level and high-end neighborhoods. Homeowners there were able to make their payments longer than homeowners in entry-level neighborhoods, but because of the recession and job losses, that's changing. Foreclosure activity is a lagging indicator of distress.l

The state's most affordable sub-markets, which represent 25 percent of the state's housing stock, accounted for 52.0 percent of all default activity a year ago. In fourth-quarter 2009 that fell to 34.9 percent.

On primary mortgages, California homeowners were a median five months behind on their payments when the lender filed the NOD. The borrowers owed a median $13,510 on a median $325,818 mortgage.

On home equity loans and lines of credit in default, borrowers owed a median $3,939 on a median $62,965 credit line. However the amount of the credit line that was actually in use cannot be determined from public records.

San Diego-based MDA DataQuick is a division of MDA Lending Solutions, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates. MDA DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts. Notices of Default are recorded at county recorders offices and mark the first step of the formal foreclosure process.

Although 84,568 default notices were filed last quarter, they involved 82,777 homes because some borrowers were in default on multiple loans (e.g. a primary mortgage and a line of credit). Multiple default recordings on the same home are trending down, DataQuick reported.

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

The number of Trustees Deeds recorded, which reflect the number of house or condo units foreclosed on, totaled 51,060 during the fourth quarter. That was up 2.1 percent from 50,013 for the prior quarter, and up 10.6 percent from 46,183 for fourth-quarter 2008. The all-time peak was 79,511 in third-quarter 2008.

In the last real estate cycle, Trustees Deeds peaked at 15,418 in third-quarter 1996. The state's all-time low was 637 in the second quarter of 2005, MDA DataQuick reported.

Foreclosure resales continued to decline as a market factor, accounting for 40.7 percent of all California resale activity last quarter. It was 42.7 percent the prior quarter, and a year ago it was 54.4 percent. It peaked at 57.8 percent in the first quarter of 2008. Foreclosure resales varied significantly by county last quarter, from 9.3 percent in San Francisco to 69.5 percent in Merced.

Of the 328,310 homes foreclosed on statewide in the 18-month period ending last September, 84.8 percent had been re-sold by the end of 2009. A year prior, the comparable number was 66.0 percent.

There are 8.5 million houses and condos in California.

The lenders that originated the most loans that went into default last quarter were Countrywide (5,588), Wells Fargo (3,482) and Washington Mutual (3,460). Along with Bank of America (1,760) and World Savings (1,869), 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 1.5 percent for Bank of America to 13.1 percent for World Savings.

Smaller subprime lenders had far higher default rates for that period: ResMAE Mortgage was at 74.8 percent, Ownit Mortgage 70.6 percent, Master Financial 69.9 percent, First NLC Financial Services 69.4 percent and Fieldstone Mortgage 65.7 percent. While these and most other subprime lenders are long gone, their loans were bundled, resold and now live on as "troubled assets".

Notices of Default (first step in foreclosure process)
houses and condos

* includes additional counties

Trustees Deeds Recorded (signal homes were lost to foreclosure)
houses and condos

La Jolla, CA---Southern California home sales in December remained above year-ago levels for the 18th consecutive month, bolstered by gains in many mid- to high-end communities. The median sale price rose year-over-year for the first time since summer 2007, reflecting a more normal distribution of sales across all price categories, a real estate information service reported.

Could it be that So-Cal is the place to be and invest in Real Estate?

A total of 22,328 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 16.4 percent from November's 19,181, and up 12.1 percent from 19,926 in December 2008, according to MDA DataQuick of San Diego.

Sales almost always rise from November to December. Last month's gain was a bit higher than the average increase of 13 percent since 1988, when DataQuick's statistics begin.

The December sales tally was the highest for that month since 24,209 homes sold in December 2006, but it was still 11.2 percent below the average for a December - 25,143 sales - over the past 22 years.

The sales pattern has changed a lot over the past year, with many mid-to high-end communities now contributing more transactions.

For example, relatively large annual sales gains were recorded last month in many well-known, higher-end markets including Beverly Hills, Santa Monica and Newport Beach - areas that saw very low sales a year ago. Meanwhile, some of the more affordable inland areas that saw robust 2008 sales recorded year-over-year declines last month. Those markets included Moreno Valley, Lake Elsinore and Palmdale.  

The median paid for all Southland houses and condos sold in December was $289,000, up 1.4 percent from $285,000 in November and up 4 percent from $278,000 a year earlier. The last time the median increased year-over-year was in August 2007, when it rose 2.7 percent to $500,000, near its peak.

The median has increased or held steady for eight consecutive months, but in December it was still 42.8 percent lower than the peak Southland median of $505,000 reached during several months in early and mid 2007. In late 2008 and early 2009, the monthly declines in the median from a year earlier ranged from 30 to 40 percent.

We've seen the re-selling of foreclosed homes fall off its peak in newer lower-cost inland areas, while at the same time sales have started to pick up in some of the more established expensive areas. That simple shift in what's selling, and what's not selling, puts upward pressure on the median. That's statistical. But we've also seen price floors, however temporary, form in many areas recently as the foreclosure inventory dwindled and buyers took advantage of lower prices, lower mortgage rates and tax credits. A meaningful comeback in the jumbo loan market would provide another big boost to the pricier areas.

Last month there were only modest signs of improvements in the jumbo market. Mortgages above $417,000 - formerly the definition of a jumbo loan - accounted for 16.7 percent of all home purchase loans, the highest since 18.7 percent in January 2008. Such jumbo loans made up nearly 40 percent of purchases before the credit crunch.

Another form of financing critical to high-end sales also edged higher in December: 4.6 percent of purchase loans had an adjustable rate, which was the highest since adjustable-rate mortgages ("ARMs") made up 7.2 percent of all home loans in September 2008. However, it was still far lower than the average monthly ARM rate of 51 percent since 2000.

December's foreclosure resales remained well below peak levels but were still a large force in the market, edging higher than the prior month for the first time since last February. Foreclosure resales - houses and condos sold in December that had been foreclosed on in the prior 12 months - were 39.6 percent of resales, up from 39.0 percent in November but down from 53.5 percent in December 2008. They hit a high of 56.7 percent last February, then tapered or leveled off month-to-month until last month's uptick.

First-time buyers and investors, including some paying all cash, continued to dominate the buy side of the market last month.

Government-insured FHA loans, a popular choice among first-time buyers, accounted for 39.6 percent of all home purchase mortgages in December.

Absentee buyers - mostly investors and some second-home purchasers - bought 19.2 percent of the homes sold in December. Buyers who appeared to have paid all cash - meaning there was no indication that a corresponding purchase loan was recorded - accounted for 24.9 percent of December sales, based on an analysis of public records. That's up from 22 percent in December 2008 but lower than the 2009 peak of 26.9 percent in September. The 22-year monthly average for Southland homes purchased with cash is 13.8 percent.

The "flipping" of homes has also trended higher over the past year. Last month the percentage of Southland homes flipped - bought and re-sold - within a three-week to six-month period was 3.1 percent. It varied from as little as 2.4 percent in San Diego County to as much as 3.8 percent in San Bernardino County. A year ago all Southland counties had flipping rates under 2 percent.  

The typical monthly mortgage payment that Southland buyers committed themselves to paying was $1,231 last month, up from $1,207 for November, and down from $1,239 for December a year ago. Adjusted for inflation, current payments were 44.4 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They were 54.4 percent below the current cycle's peak in July 2007.