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California Foreclosures Surge 327%

More than 500 foreclosures filed every day

By Mark Huffman
ConsumerAffairs.com

April 23, 2008

Then along comes a report from DataQuick, underscoring just how critical the problem is becoming in California, the nation's largest state and by many measures, its wealthiest.

The number of California homes lost to foreclosure in the first quarter of 2008 is up a staggering 327 percent from the first quarter a year ago, according to DataQuick. It's reached an average of more than 500 a day.

Put another way, there were more than 8,000 foreclosures in southern California in the first quarter of 2007. There were more than 20,000 in the first quarter of this year.

Lending institutions sent homeowners 113,676 default notices during the January-to-March period. That was up by 39.4 percent from 81,550 the previous quarter, and up 143.1 percent from 46,760 for first-quarter 2007, according to DataQuick Information Systems.

Last quarter's number of defaults was the highest in DataQuick's statistics, which go back to 1992.

"The main factor behind this foreclosure surge remains the decline in home values," said Marshall Prentice, DataQuick's president.

"Additionally, a lot of the 'loans-gone-wild' activity happened in late 2005 and 2006 and that's working its way through the system," he said. "The big 'if' right now is whether or not the economy is in recession. If it is, the foreclosure problem could spread beyond the current categories of dicey mortgages, and into mainstream home loans."

In other words, it could get worse.

Most of the loans that went into default last quarter were originated between August 2005 and October 2006. The median age was 23 months, up from 16 months a year earlier.

Five months behind

On primary mortgages, California homeowners were a median five months behind on their payments when the lender started the default process. The borrowers owed a median $11,474 on a median $346,750 mortgage.

On home equity loans and lines of credit, homeowners were a median eight months behind on their payments. Borrowers owed a median $3,512 on a median $60,000 credit line. However the amount of the credit line that was actually in use cannot be determined from public records.

Although 113,676 default notices were filed last quarter, they pertained to 110,392 homes. The difference is the result of some borrowers defaulting on multiple loans (e.g. a primary mortgage and a line of credit).

Last quarter's default numbers were a record in almost all of California's 58 counties. The notable exception being Los Angeles County, which was particularly hard hit by the recession of the early 1990s. During last quarter, the county's 20,339 defaults represented 94.8 percent of its peak quarter back in Q1 of 1996, which saw 21,444 defaults.

On a loan-by-loan basis, mortgages were least likely to go into default in San Francisco, Marin, and San Mateo counties. The likelihood was highest in Merced, San Joaquin and Stanislaus counties.

One-third survive

Of the homeowners in default, an estimated 32 percent emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe. A year ago it was about 52 percent. The increased portion of homes lost to foreclosure reflects the slow real estate market, as well as the number of homes bought during the height of the market with multiple-loan financing, which makes 'work-outs' difficult, the report said.

Foreclosure resales have emerged as a significant market factor, accounting for 33.1 percent of all California resale activity last quarter. A year ago it was 3.2 percent. Foreclosure resales vary significantly by area, from 5.1 percent in San Francisco County to 66.7 percent in San Joaquin County.

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