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The number of Californians entering foreclosure is at lowest level since 2007

Notices of default against California homes dropped 17% in the second quarter from the first quarter and 19.2% from the second quarter of 2010. Banks repossessed 10.9% fewer homes than a year ago and 1.4% fewer than in the first quarter.

July 20, 2011|By Alejandro Lazo, Los Angeles Times
  • A total of 56,633 homes received a notice of default, the first step in the foreclosure process, in the second quarter. Above, a foreclosure sign in front of a home in Richmond, Calif.
A total of 56,633 homes received a notice of default, the first step in the… (Justin Sullivan, Getty…)

The number of Californians entering foreclosure dropped steeply in the second quarter to the lowest level since 2007, a sign the foreclosure crisis in the Golden State could be easing as the housing market stabilizes and regulators increase scrutiny of lenders.

Notices of default filed against California homes dropped 17% from the previous quarter and 19.2% from the same period last year, according to San Diego research firm DataQuick. A total of 56,633 homes received a notice of default, which is the first formal step in the foreclosure process.

DataQuick President John Walsh attributed the second-quarter declines to a steadier housing market.

"Homeowner distress spreads fastest when home price declines are steepest," Walsh said in a statement. "And it now appears likely that, barring some new economic shock, the worst of the price declines are behind us."

The number of homes taken back by banks also fell in the second quarter. A total of 42,465 homes were repossessed during those three months, a 10.9% decline from a year earlier and a 1.4% drop from the first quarter. On average, California homes took 10 months to wind their way through foreclosure, up from 9.1 months in the previous quarter and the year-earlier period.

Foreclosures have slowed nationally partly because homeowners are challenging them in court and the nation's biggest banks are negotiating a settlement with regulators over faulty repossession practices.

Some experts believe that if a settlement is reached, foreclosures could surge again once banks overhaul their practices and compensate borrowers. But unlike states where the foreclosure system is overseen by the court system, California has seen a steady decline in default notice filings for more than two years with the housing market recovering faster than other hard-hit regions.

Still, a steady flow of distressed properties could continue for years, said Robert Hooker, executive director of the Inland Empire Economic Recovery Corp., a San Bernardino nonprofit that buys, rehabilitates and sells foreclosed homes.

"This current decline is probably short-lived because the banks are readjusting themselves," Hooker said. "They still have a tremendous amount of shadow inventory, and they don't want to saturate the market."

And Bruce Mirken, a spokesman for the Greenlining Institute in Berkeley, said many troubled homeowners still remain in serious need of government assistance.

"It's way too early to pop the champagne corks," he said. "Dropping back to 2007 levels is a positive trend, but foreclosures in 2007 were quite high by historical standards — more than double the rate in preceding years. There are many reasons to doubt whether the housing market has really turned the corner, and the need for serious foreclosure relief and principal reduction has absolutely not gone away."

The second quarter marked the lowest level of default notices received by California homeowners since the second quarter of 2007. That was when the subprime mortgage crisis was pushing the nation into the throes of a credit crunch that would end in financial crisis and the most severe recession since the Great Depression.

Last quarter's numbers were also well below the record 133,431 default notices filed in the first quarter of 2009, when home prices were still dropping sharply.

Homeowners in more affluent, coastal counties were less likely to enter foreclosure than those in other parts of the state. Mortgages on properties in San Francisco, Marin and San Mateo counties were the least likely to go into default, while those in Kings, Sutter and Yuba counties were the most likely, DataQuick reported.

In one sign that the most beaten-down areas of the state might be getting some relief, the default-notice decline was greatest in the state's least expensive communities, where foreclosures had been the most prevalent, DataQuick said.

Most loans receiving default notices last quarter were made in 2005 through 2007, the tail end of the bubble, indicating that the most distressed homeowners in the state bought their properties during the run-up in home prices and during the height of the shoddy lending practices that pervaded the mortgage industry.

The most active lending institutions foreclosing on Californians were JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp. Although 56,633 default notices were filed in the second quarter, they involved 55,153 homes because some borrowers were in default on multiple loans.

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