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27 Jan 10 California Mortgage Defaults Down 24%

According to DataQuick the number of homes entering the first stage of foreclosure fell in the fourth quarter compared with the previous quarter, says a sign that banks are working with delinquent borrowers. Clearly, loan modification programs have helped thousands of California homeowners avoid foreclosures. Fewer Californian borrowers entered foreclosure during the last three months of the year as bailed-out banks appeared to step up their work with delinquent homeowners, according to data released this morning, although the number of homes taken back by banks rose slightly. California mortgage rates remain low, but most borrowers are unable to qualify for a refinance, so loan modification plans have become more important than ever.

The number of homes entering the first stage of foreclosure, or receiving notices of default, declined 24.3% during the fourth quarter from the prior three months, according to county data collected by DataQuick, a San Diego research firm. The decline in the default number is significant because any new wave of foreclosures will first be detected by that measure, according to the firm. Meanwhile, the number of homes taken back by lenders through trustee sales ticked up 2.1% in the fourth quarter over the third. The trustee sale is the final stage of California’s foreclosure process. “Clearly, many mortgage lenders and servicers have concluded that the traditional foreclosure process isn’t necessarily the best way to process market distress,” MDA DataQuick President John Walsh said. He said banks have been negotiating with distressed borrowers to keep them in their homes and increasingly turning to “short sales” in which the banks accept an offer that is less than the value of the outstanding mortgage; banks end up taking a loss on such deals. At the same time, big banks are feeling intense pressure in Washington to work with troubled borrowers through the Obama administration’s Making Home Affordable program. Much of that relief has been temporary.

Through December, banks had lowered mortgage payments for 172,288 California borrowers, but only 7.8% of those modifications were permanent, according to government data. Many experts consider that record a failure and fear that if the government doesn’t improve its performance those mortgage loans eventually will go into foreclosure and put pressure anew on the state’s housing market.

While the number of California mortgage delinquencies declined to 8.71% at the end of the fourth quarter from 8.87% at the end of the third, according to data from Equifax and Moody’s Economy.com, the percentage loans that were 120 days or more past due increased to 4.7% from 4.51%. Those figures indicate that the Obama administration’s efforts to help troubled homeowners have allowed some borrowers to stay out of default but kept many in a kind of late stage of delinquency limbo, said Celia Chen, senior director of Moody’s Economy.com. If the majority of borrowers who have received temporary loan modifications under Obama’s program are unable to get permanent changes to their bad credit-mortgages, another wave of foreclosures could follow, she said. “Given what we see in terms of the number of distressed properties that are in the pipeline, we do expect that home foreclosures will mount as borrowers are not able to make it from a trial modification to a permanent modification,” Chen said. “This will cause home prices to start falling again.” A total of 84,568 notices of default were recorded at county recorders offices during the fourth quarter, an increase of 12.4% from the fourth quarter of 2008. Trustees deeds recorded, or the actual loss of a home to foreclosure, totaled 51,060 during the fourth quarter, up 10.6% from 46,183 for fourth-quarter 2008. An all-time high for notices of default was reached in the first quarter of 2009 at 135,431.

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