Another Decline in California Foreclosure Activity

La Jolla, CA (DQ News) -- The number of California homes going into foreclosure dropped again during the fourth quarter of 2010 to its lowest level in more than three years, the result of shifting market conditions as well as evolving lender and mortgage servicer policies, a real estate information service reported.

A total of 69,799 Notices of Default (NoDs) were recorded at county recorders offices during the October-to-December period. That was down 16.2% from 83,261 for the prior quarter, and down 17.5% from 84,568 in fourth quarter 2009, according to San Diego-based DataQuick Information Systems.

Last quarter's activity was the lowest since 53,943 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.

"We don't know how much of the decline is due to less household financial distress, and how much is due to shifts in lender and servicer foreclosure policies. The level of default activity would certainly be higher if it weren't for alternative strategies such as short sales, or even lengthening grace periods," said John Walsh, DataQuick president.

"The institutions that hold these loans in their portfolios will do whatever it takes to lessen their losses, including waiting. An additional factor is all the turbulence when it comes to the formalities of the foreclosure process," he said.

While most of the loans that went into default last quarter were originated during the 2005-2007 period, the median origination quarter for defaulted loans remained third-quarter 2006. That has been the case for over a year, 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 Bank of America(BAC)(16,199), Wells Fargo(WFC)(10,287), Mortgage Electronic Registration Systems, also called MERS (5,315) and JP Morgan Chase(JPM)(5,258).

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 and JP Morgan Chase), Cal-Western Reconveyance (Wells Fargo) and NDEx West (Wells Fargo).