Second quarter Notices of Default in California dropped to their lowest level since early 2007, according to a report from real estate data provider DataQuick. The decline comes as some of the worst mortgages originated from 2005 to 2007 are being burned off and short sales are becoming more common.
A total of 54,615 NODs were recorded on houses and condos in the second quarter, down 2.9% from the previous quarter and down 3.6% year-over-year. The number is the lowest since 53,943 NODs were recorded in second-quarter 2007.
The year-over-year drop was most noticeable in the Bay Area, where filings were down 13.4% to 8,572 from 9,893 a year ago.
"The foreclosure process has always been the sanitation department of the housing sector. It's where financial distress is processed. The question is whether these lower NOD numbers mean that there's less distress to process, or if we're just seeing distress get processed at a slower pace," said John Walsh, DataQuick president.
Walsh said the drag caused by the housing market is leading to some "interesting alternatives" to the foreclosure process, including the use of eminent domain to buy and restructure mortgages.
NOD filings fell last quarter in communities across home prices, but mortgage defaults were still concentrated in California's least expensive neighborhoods. ZIP codes with median sale prices below $200,000 saw almost nine NODs filed for every 1,000 homes, while ZIP codes with $200,000 to $800,000 medians only saw 5.6 for every 1,000. For ZIP codes with median prices above $800,000, there were 2.2 NODs filed per 1,000 homes.
Most of the loans going into default continue to be from the 2005 to 2007 period. The median origination quarter for defaulted loans is still third-quarter 2006, which as been the case for three years, indicating that weak underwriting standards came to a point at that time.
Of the state's larger counties, mortgages were least likely to go into default in San Francisco, Marin and San Mateo counties, while the probability was the highest in Tulare, San Joaquin and Sacramento counties.
Trustees Deeds recorded was also down in the second quarter to the lowest level since second-quarter 2007. TDs saw a 27.8% drop to 21,851 from 30,261 the prior quarter, and a 48.5% drop from 42,465 in the second-quarter 2011. Only 17,458 were filed in second quarter 2007.
TDs were also the most concentrated in the least expensive neighborhoods, with ZIP codes with median sale prices below $200,000 seeing 4.3 homes foreclosed for every 1,000 existing homes. Only 1.9 per 1,000 homes in ZIP codes with medians between $200,000 and $800,000 were foreclosed on, and less than one — 0.5 — foreclosure took place for every 1,000 homes in zip codes with median sale prices $800,000 and above.
Foreclosure resales made up 27.9% of the state's resale activity in 2Q, down from a revised 33.6% the prior quarter and 35.6% a year ago. Short sales made up 18% of statewide resale activity last quarter, down from an estimated 20.1% the quarter before, and up from 17.4% one year ago. The number of short sales last quarter was an estimated 20,141, up 13% from the prior quarter and up 10.2% from one year earlier.
Homes foreclosed on last quarter took an average of 7.7 months to get through the formal foreclosure process, beginning with an NOD. This is down from an average of 8.5 months the prior quarter and 10 months a year earlier.
At formal foreclosure auctions held in California last quarter, an estimated 40.1% of foreclosed properties were bought by investors or others that did not appear to be a lender or government entities — up from an estimated 33.4% the quarter before, and 28.3% in the second quarter of 2011.