Foreclosure notices on the rise
By James Lanaras, Bay City News Service
August 3, 2006
Waning home price appreciation has recently caused the fastest
rate of increase in foreclosure activity in California in the
past 14 years, DataQuick Information Systems reported Wednesday.
The company compared foreclosure activity as measured by default
notices between the second quarter of this year and the second
quarter of 2005.
Despite the second quarter surge, defaults still remain below
historically normal measures, according to DataQuick, a subsidiary
of Vancouver-based MacDonald Dettwiler and Associates. The company
monitors and releases real estate activity nationwide.
"This is an important trend to watch but doesn't strike
us as ominous. The increase was a statistical certainty because
the number of defaults had fallen to such extreme lows.
We would have to see defaults roughly double from today's levels
before they would begin to impact home values much,'' said Marshall
Prentice, president of DataQuick.
Every Bay Area county except Marin experienced an increase in
the notices of default on houses and condos during the one-year
period ending June 30, according to DataQuick's figures. The increase
in the Bay Area was 37 percent, the lowest of several regions
monitored by DataQuick.
Default notices are filed with the county recorder's office and
mark the first step in the foreclosure process. The increase in
the default notice rate was highest in Northern California, 97
percent, and in the Central Valley, 85 percent.
Default notices declined 9.4 percent in Marin County. They increased
74 percent in Napa County; 65 percent in Solano County; 53 percent
in Sonoma County and 51 percent in San Mateo County. All other
Bay Area counties were below 43 percent. Santa Clara County default
notices increased the least in the Bay Area, 14.5 percent.
Default notices increased 104 percent in Riverside County; 99
percent in San Diego County; 108 percent in Sacramento County;
110 percent in Stanislaus County and 126 percent in Placer County.
In Sutter County, the default rate increased 229 percent. There,
second quarter default notices increased from 17 in 2005 to 56
There was no change in the default notice rate in Santa Cruz
Dennis Kelly, assistant manager of Coldwell Banker in San Rafael,
said DataQuick's figures sound "extreme,'' but he said he
has recently noticed anecdotal evidence of some people in Marin
County falling behind their mortgage payments, especially those
with 100 percent financing of their mortgage. He said the default
notice rate in Marin County could increase.
Kelly said it takes lenders three to six months to file a notice
of default and then another three months for lenders to issue
a notice of sale.
It is possible Marin County's default notice rate declined in
the past year because homeowners in Marin County are wealthier
than homeowners in other areas of the state and Bay Area and better
able to make their mortgage payments, Kelly said.
The median price of a home in Marin County was $971,500 last
DataQuick said lenders sent 20,752 default notices to homeowners
statewide during the April-through-June 2006 period, a 10.5 percent
increase over the first quarter of 2006 and 67.2 percent more
than the second quarter of 2005.
Last quarter's year-over-year increase was the highest for any
quarter since DataQuick began tracking results in 1992. On average,
lenders filed 32,762 notices of default each quarter over the
past 14 years. Last quarter's 20,752 total was the highest since
25,511 notices were filed in the first quarter of 2003.
DataQuick's Marshall Prentice said that while rising payments
on adjustable rate mortgages can trigger "borrower distress,''
the spike in defaults is mainly due to slowing price appreciation.
"It makes it harder for people who fall behind on their
mortgage to sell their homes and pay off the lender,'' Prentice
Other factors that contribute to higher defaults include the
amount of equity owners have in their homes, the type of mortgage
and how long the mortgage has been held, DataQuick said.
Homeowners with initial interest-only mortgages experience dramatically
higher mortgage payments when payments later include the principal
on the loan.
Foreclosure activity hit a low during the third quarter of 2004
when lenders filed 12,145 default notices, DataQuick said. California
home prices that year rose at an annual rate of 20 percent. Annual
price gains this year have slipped to single digits in many of
the state's larger housing markets, DataQuick said.
The peak level of foreclosure activity was in the first quarter
of 1996 when 59,897 defaults were filed and the state was in a
housing slump with foreclosure activity lowering home values 10
percent in some areas, DataQuick said. Today's statewide foreclosure
activity amounts to one-third of that 1996 level.
Today, only about 7 percent of homeowners who find themselves
in default lose their homes to foreclosure. Most homeowners stop
the process by bringing their mortgage payments current or by
selling their homes to pay off the loan, DataQuick said.
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