California Foreclosures Plummet to 4-Year Low

The number of California homes that went into foreclosure fell to a four-year low last quarter, the result of a more stable housing market as well as policy changes in the mortgage servicing industry, a real estate information service reported.

A total of 56,633 Notices of Default (NoDs) were recorded at county recorders offices during the April-to-June period. That was down 17.0% from 68,239 for the prior quarter, and down 19.2% from 70,051 in second-quarter 2010, according to San Diego-based DataQuick.

Last quarter’s activity was the lowest for any quarter since 53,493 NoDs were recorded in the second quarter of 2007. It was well below half the record 135,431 default notices recorded in the first quarter of 2009.

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

The statewide median sales price was $250,000 in the second quarter this year, down 7.4% from $260,000 a year earlier. In first-quarter 2009, when foreclosure activity peaked, the $227,000 median was down 39.5% from $375,000 a year earlier. The latter decline reflected not only steep home-price depreciation but very weak high-end sales amid robust sales of low-cost inland foreclosures.

Most of the loans going into default today are from the 2005-2007 period: the median origination quarter for defaulted loans is still third-quarter 2006. That has been the case for more than two years, indicating that weak underwriting standards peaked then.

Most of the loans made in 2006 are owned and/or serviced by institutions other than those that made the loans.

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