About 19,215 notices of default (NoDs) were recorded by California servicers during the first quarter, up 6% from 18,120 NoDs in the fourth quarter of 2013 and up 3.5% from 18,568 NoDs in the first quarter of 2013, DataQuick, now owned by CoreLogic, reports.
Despite the recent rise in NoDs for the state, the rate of default remains far below the peak in the first quarter of 2009, when 135,431 NoDs were recorded.
What's more, DataQuick points out that the spike in defaults in the first quarter was 'due to an anomaly early in first-quarter 2013: There was a short-lived plunge in NoD filings in January and February last year as new state laws – known as the 'Homeowner Bill of Rights' – took effect, causing lenders and servicers to pause and adjust.’
As a result, NoD filings increased on a year-over-year basis in January, rising 63.9%, while February and March NoD levels fell 2.8% and 22.5%, respectively.
Interestingly, the report points out that the NoD numbers reported in any given month are not necessarily reflective of a market trend but rather how quickly servicers are working through troubled mortgages.
‘It may well be that the foreclosure starts in recent quarters don't reflect the ebb and flow of financial distress as much as they reflect a steady state of workload capacity on the part of the servicers,’ says John Karevoll, analyst at DataQuick. ‘They may well be just working their way through a backlog, stacks of paper piled high on desks.’
Many of the loans currently in default hark back to 2005-2006, when underwriting standards were more relaxed compared to today. Many of these loans have since been modified, but many homeowners continue to struggle.
Still, NoD totals during the past three quarters, along with the first quarter of 2013, are the lowest since late 2005 and early 2006, DataQuick says.
While Dataquick forecasts that the number of homeowners defaulting on their mortgage will continue to trend lower thanks to higher home prices and improving economic conditions, NoD filings could, for a variety of reasons, edge higher. For example, some larger lenders and servicers could quicken the pace at which they're processing existing backlogs of distressed properties. And there could be a spike in "re-defaults" among borrowers who avoided foreclosure with a loan modification.
On primary mortgages, California homeowners were a median 9.8 months behind on their payments when the lender filed the NoD in the first quarter. The borrowers owed a median $22,538 on a median $301,732 mortgage.
On home equity loans and lines of credit in default, borrowers owed a median $5,924 on a median $69,603 credit line. The amount of the credit line that was actually in use cannot be determined from public records.
DataQuick emphasizes that although 19,215 default notices were filed last quarter, they involved 18,613 homes because some borrowers were in default on multiple loans (e.g., a primary mortgage and a line of credit).
The number of trustees deeds recorded, which indicates the actual loss of a home to the formal foreclosure process, totaled 7,799 in the first quarter – the lowest since the fourth quarter of 2006, when 6,078 homes were foreclosed on. The first quarter's foreclosure rate fell 4.9% from 8,205 in the fourth quarter of 2013 and fell 42.6% from the first quarter of 2013.
On average, homes foreclosed on last quarter took 9.5 months to wind their way through the formal foreclosure process, beginning with an NoD. That's up from an average of nine months the prior quarter and up from 8.1 months a year earlier.