June 5, 2010
The California foreclosure crisis appears to be abating, new data shows, as the federal government and big lenders step up efforts to keep troubled borrowers in their homes.
Mortgage default notices—the first step toward foreclosure—plunged by 40.2% statewide in the first three months of the year compared with the same period in 2009, according to San Diego research firm MDA DataQuick. Foreclosure sales dropped 1.7% from a year earlier and 16.1% from the last three months of 2009, DataQuick said recently.
The numbers suggest that the housing market won’t be flooded by a fresh wave of bank repossessions, which had been seen as a major threat to the market’s recovery.
“It is surprisingly good news,” said Gerd-Ulf Krueger, principal economist at Housingecon.com. “There is still a lot of supply lurking out there, but at this point, it looks like it is pretty much under control.”
Stuart A. Gabriel, director of UCLA’s Ziman Center for Real Estate, said the declining foreclosure numbers are “consistent with a broad range of indicators that are suggestive of not only a healing economy but the beginning of healing in the housing market.”
Southern California home prices jumped 14% in March 2010 from the same month a year ago, to a median $285,000. Even so, economists note that further gains statewide are jeopardized by continued high unemployment, particularly in the Inland Empire and the Central Valley.
Foreclosure activity remains concentrated in these inland areas, which suffer from above-average unemployment. DataQuick said mortgages were most likely to go into default in Merced, Stanislaus and San Joaquin counties. Conversely, defaults were least likely in the San Francisco Bay Area counties of Marin, San Francisco and San Mateo.
“In coastal California, things are looking pretty decent,” said Richard Green, director of the USC Lusk Center for Real Estate. “I still think if you get into the Inland Empire, Fresno, Bakersfield, Modesto, people are really struggling because the unemployment rate is so high—so that people just need help to get out from under.”
California loan default notices peaked at 135,431 in the first quarter of 2009. Since then, the federal government has put increasing pressure on banks to work with homeowners behind on their payments. At the same time, experts say, banks have recognized that flooding the market with foreclosures weakens the value of the properties they have taken back and must resell.
Nestor Fabian and his wife Ada are among those who are hoping for a break from their lender. The couple bought a four-bedroom, three-bath home in Victorville in 2006 and said they owe Wells Fargo Bank about $305,000 on a property they believe is worth about $128,000. Ada lost her job about two years ago and has since been jobless. “I feel like a prisoner in my home,” said Nestor, an audio technician who commutes to Pasadena. “Basically, I am asking for any peanuts they can give me.”
Fabian is trying to arrange a lowered mortgage with Wells Fargo through the Obama administration’s $75 billion effort to help troubled borrowers. While the Fabians are hoping for relief, many others are still losing their homes. Paula Murray and her husband Roger lost their Apple Valley home to a foreclosure sale in January. They are scrambling to find an apartment before they are evicted June 1.
But it isn’t easy, Paula noted, because both she and her husband are unemployed and the foreclosure has damaged their credit rating. “It hurts me because the government gives all this money to these big rich guys to bail them out, bails out the banks, but the little guy can’t get bailed out,” Murray said.
In March, the Obama administration unveiled measures aimed at getting lenders to reduce principal balances on problem mortgages and refinance “underwater” borrowers, those who owe more on their home than it is worth. Another provision would allow many unemployed homeowners to get three to six months of reduced mortgage payments while they look for a job.
Kevin Stein, associate director at the California Reinvestment Coalition, said that while the program has added some uniformity to efforts to modify loans it remains fundamentally flawed. “Its main limitation is it continues to rely on voluntary participation and financial incentives for the banks to do what it is we all want them to do, which is work with families to avoid foreclosure,” Stein said.
Foreclosures may also be slowing because banks are deliberately putting fewer homes on the market, experts said. It’s now taking homes about 7.5 months on average to go from a default notice to a foreclosure sale. A year ago, it was 6.8 months, according to DataQuick.
“They may be a little bit reluctant to put homes on the market all at one time,” said Celia Chen, a housing economist with Moody’s Economy.com. “I also think the process is lengthy and there are many homes in the foreclosure process, and so the process may just be clogged up.”
Across California, 81,054 borrowers received a notice of default in the first quarter of this year, down 4.2% from 84,568 in the fourth quarter of 2009. It was the fourth straight quarter in which default notices declined.
There were 42,857 foreclosure sales, a decrease of 16% from 51,060 in the fourth quarter of 2009 and 1.7% from 43,620 in the same period a year ago.