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Why foreclosure filings are falling in California

Only 18,120 notices of default recorded in 4Q

Foreclosure starts fell to an eight-year low in California during the fourth quarter, as the state continued benefiting from rising prices, more aggressive foreclosure prevention efforts and higher home prices, says John Walsh, president of DataQuick.

DataQuick reported 18,120 notices of default (NOD) for the fourth quarter, down 10.8% from 20,134 the previous period and a 52.6% drop from 38,212 in the fourth quarter of 2012. 

"Some of this decline in foreclosure starts stems from the use of various foreclosure prevention efforts – short sales, loan modifications and the ability of some underwater homeowners to refinance," Walsh said. "But most of the drop is because of the improving economy and the increase in home values. Fewer people are behind on their mortgage payments. And of those who do get into trouble, many, if not most, can sell and pay off what they owe."

The equity well California homeowners have to tap into has only grown in the last year, with the median price of a California home reaching $364,000 in the fourth quarter, up 22.1% from $298,000 a year earlier.

That’s a 20% rise on a year-over-year basis over the course of five consecutive quarters. The peak median price came back in the second quarter of 2007 when the median reached $485,500 in California.  

It seems the California neighborhoods still struggling are those where homes are valued in the sub-$200,000 range. Those zip codes saw 3.1 default filings for every 1,000 homes last quarter. In the $200K-to-$800K range, the default ratio came in at 2 filings for every 1,000 homes.

Even if some defaults keep coming, many of these troubled loans are leftover from the final days of the housing bubble.

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

California also is a market featuring aggressive foreclosure regulations, with the California Homeowner Bill of Rights — which creates a private right of action for foreclosure plaintiffs — now in effect for well over a year.

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