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Shifts in the economy, coupled with policy changes within the mortgage industry, led to a decline in the number of financially distressed California homeowners who were subjected to the foreclosure process. Last quarter's activity was the lowest since the second quarter of 2007. Learn more about this in the full article from The Street.

The number of financially distressed California homeowners who were dragged into the formal foreclosure process declined again last quarter, the result of turmoil and policy changes within the mortgage industry as well as shifts in the economy, a real estate information service reported.

A total of 68,239 Notices of Default (NoDs) were recorded at county recorders offices during the January-to-March period. That was down 2.2% from 69,799 for the prior quarter, and down 15.8% from 81,054 in first-quarter 2010, according to DataQuick. The San Diego firm tracks real estate trends nationally via public property records.

Last quarter's activity was the lowest since 53,493 NoDs were recorded in the second quarter of 2007. It was just over half the record 135,431 default notices recorded in the first quarter of 2009.

"Lenders and servicers have put various temporary holds on foreclosure filings while they work on procedural issues and respond to regulatory and legal challenges. It's unclear how much of last quarter's decline can be attributed to market factors and strategic decisions, and how much can be attributed to the formalities of the foreclosure process," said John Walsh, DataQuick president.

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

Most of the loans made in 2006 are owned and/or serviced by institutions other than those that made the loans.

The most active "beneficiaries" in the formal foreclosure process last quarter were JPMorgan Chase (JPM)(9,634), Wells Fargo (WFC) (8,329) and Bank of America (BAC) (7,158).

The "servicers" (or the Trustees in the formal foreclosure process) that pursued the highest number of defaults last quarter were ReconTrust Co (mostly for Bank of America and MERS), Quality Loan Service Corp (Bank of America), California Reconveyance Co (JPMorgan Chase), NDEx West (Wells Fargo) and Cal-Western Reconveyance Corp (Wells Fargo).

California's priciest zip codes collectively saw mortgage defaults buck the market-wide trend again and rise slightly quarter-to-quarter, while their defaults fell less on a year-over-year basis than in the overall market. The state's 80 zip codes with median sale prices of $800,000 or more last quarter posted a 5.8% quarter-to-quarter increase in default notices and a 4.7% year-over-year decline.

At the other end of the price spectrum, zips with medians below $200,000 saw first-quarter defaults drop 5.5% from the prior quarter and drop 17.7% from a year ago.

But the concentration of defaults remains far higher in lower-cost areas: Last quarter, zips with sub-$200,000 medians collectively saw 10.7 default notices filed per 1,000 homes. That compares with 7.9 filed per 1,000 homes for all zip codes statewide, and just 3.1 default notices filed per 1,000 homes in zips with $800,000-plus medians.

On primary mortgages, California homeowners were a median six months behind on their payments when the lender filed the Notice of Default. The borrowers owed a median $15,818 on a median $323,667 mortgage.

On home equity loans and lines of credit in default, borrowers owed a median $4,076 on a median $67,222 credit line. However the amount of the credit line that was actually in use cannot be determined from public records.

San Diego-based DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts. Notices of Default are recorded at county recorders offices and mark the first step of the formal foreclosure process.

Although 68,239 default notices were filed last quarter, they involved 66,251 homes because some borrowers were in default on multiple loans (e.g. a primary mortgage and a line of credit).

Mortgages were least likely to go into default in San Francisco, Marin and San Mateo counties. The probability was highest in Tulare, Madera and San Joaquin counties.

Trustees Deeds recorded (TDs), or the actual loss of a home to foreclosure, totaled 43,052 during the first quarter. That was up 21.5 % from 35,431 for the prior quarter, and up 0.5% from 42,857 for first-quarter 2010. The all-time peak was 79,511 in third-quarter 2008.

In the last real estate cycle, Trustees Deeds peaked at 15,418 in third-quarter 1996. The state's all-time low was 637 in the second quarter of 2005, according to DataQuick, whose statistics go back to 1988.

At the zip code level last quarter, zips with sub-$200,000 median sale prices saw Trustees Deeds rise 22.6% quarter-to-quarter and drop 2.1% year-over-year. That compares with a relatively small 7.7% quarter-to-quarter increase and a 2.2% year-over-year drop for California zip codes with $800,000-plus medians.

But just as with mortgage defaults, foreclosure concentrations remain far greater in the lower-cost neighborhoods: Zips with sub-$200,000 medians logged 8.6 foreclosures per 1,000 homes last quarter. That compares with 5.0 foreclosures per 1,000 homes across all zip codes statewide and 0.9 foreclosures per 1,000 homes for the group of zips with $800,000-plus medians.

There are 8.6 million houses and condos in the state.

Foreclosure resales accounted for 39.9% of all California resale activity last quarter. It was 37.5% the prior quarter, and a year ago it was 42.5%. It peaked at 57.8% in the first quarter of 2009. Foreclosure resales varied significantly by county last quarter, from 11.9% in San Francisco County to 61.0% in Stanislaus County.

Short sales - transactions where the sale price fell short of what was owed on the property - made up an estimated 18.2% of statewide resale activity last quarter. That was up from an estimated 17.9% the prior quarter and 17.7% a year ago. Two years ago, in first quarter 2009, short sales made up an estimated 11.3% of resales.

On average, homes foreclosed on last quarter took 9.1 months to wind their way through the formal foreclosure process, beginning with an NOD. That's up from 8.8 months for the prior quarter and 7.5 months a year earlier. The increase could reflect, among other things, lender backlogs and paperwork problems, legal and regulatory challenges and extra time needed to pursue loan modifications and short sales.

At formal foreclosure auctions held statewide last quarter, an estimated 23.6% of the foreclosed properties were bought by investors or others who don't appear to be lender or government entities. That was up from 22.1% the previous quarter but down from 24.8% a year earlier, DataQuick reported.

This article was republished with permission from The Street.