The number of homes entering the first stage of foreclosure fell in the fourth quarter compared with the previous quarter, MDA DataQuick says -- a sign that banks are working with delinquent borrowers
By Alejandro Lazo
Fewer Californians entered foreclosure during the last three months of the year as bailed-out banks appeared to step up their work with delinquent borrowers, according to data released this morning, although the number of homes taken back by banks rose slightly.
The number of homes entering the first stage of foreclosure, or receiving notices of default, declined 24.3% during the fourth quarter from the prior three months, according to county data collected by MDA DataQuick, a San Diego research firm. The decline in the default number is significant because any new wave of foreclosures will first be detected by that measure, according to the firm.
Meanwhile, the number of homes taken back by lenders through trustee sales ticked up 2.1% in the fourth quarter over the third. The trustee sale is the final stage of California's foreclosure process.
"Clearly, many lenders and servicers have concluded that the traditional foreclosure process isn't necessarily the best way to process market distress," MDA DataQuick President John Walsh said. He said banks have been negotiating with distressed borrowers to keep them in their homes and increasingly turning to "short sales" in which the banks accept an offer that is less than the value of the outstanding mortgage; banks end up taking a loss on such deals.
At the same time, big banks are feeling intense pressure in Washington to work with troubled borrowers through the Obama administration's Making Home Affordable program. Much of that relief has been temporary. Through December, banks had lowered mortgage payments for 172,288 California borrowers, but only 7.8% of those modifications were permanent, according to government data.
Many experts consider that record a failure and fear that if the government doesn't improve its performance, those loans eventually will go into foreclosure and put pressure anew on the state's housing market.
While the number of California mortgage delinquencies declined to 8.71% at the end of the fourth quarter from 8.87% at the end of the third, according to data from Equifax and Moody's Economy.com, the percentage loans that were 120 days or more past due increased to 4.7% from 4.51%.
Those figures indicate that the Obama administration's efforts to help troubled homeowners have allowed some borrowers to stay out of default but kept many in a kind of late stage of delinquency limbo, said Celia Chen, senior director of Moody's Economy.com. If the majority of borrowers who have received temporary loan modifications under Obama's program are unable to get permanent changes to their mortgages, another wave of foreclosures could follow, she said.
"Given what we see in terms of the number of distressed properties that are in the pipeline, we do expect that foreclosures will mount as borrowers are not able to make it from a trial modification to a permanent modification," Chen said. "This will cause home prices to start falling again".
A total of 84,568 notices of default were recorded at county recorders offices during the fourth quarter, an increase of 12.4% from the fourth quarter of 2008. Trustees deeds recorded, or the actual loss of a home to foreclosure, totaled 51,060 during the fourth quarter, up 10.6% from 46,183 for fourth-quarter 2008.
An all-time high for notices of default was reached in the first quarter of 2009 at 135,431. Trustees deeds peaked at 79,511 in the third quarter of 2008.
The worst may be over for California's hard-hit entry-level markets, DataQuick said. The state's most affordable markets, which represent 25% of the state's housing stock, accounted for 34.9% of all foreclosure activity in the fourth quarter, down from 52% a year earlier.
Nevertheless, mortgages were still more likely to go into default in inland areas such as Merced, Stanislaus and Riverside counties, which were ravaged by foreclosures during the downturn. The coastal counties of San Francisco, Marin and San Mateo had the least probability of default, DataQuick said.
While many of the loans that went into default 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 a year before was June 2006, so the foreclosure process has moved forward through one month of bad loans during the last 12 months, according to DataQuick.
"Mid-2006 was clearly the worst of the 'loans gone wild' period and it's taking a long time to work through them," Walsh said. "We're also watching foreclosure activity start to move into more established mid-level neighborhoods. Homeowners were able to make their payments longer than homeowners in entry-level neighborhoods, but because of the recession and job losses, that's changing."
The lenders that originated the most loans that went into default last quarter were Countrywide with 5,588, Wells Fargo with 3,482 and Washington Mutual with 3,460. Along with Bank of America (1,760 loans) 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% for Bank of America to 13.1% for World Savings, according to DataQuick.
On primary mortgages, California homeowners were a median five months behind on their payments when lenders filed notice. 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. The amount of the credit line that was actually in use can't be determined from public records.
Los Angeles Times
