Foreclosure

In Southern California, the number of default notices filed on properties fell 10.2% from a year earlier. Above, a foreclosed house in Glendale. (Kevork Djansezian, Getty Images / September 15, 2011)

By Alejandro Lazo, Los Angeles Times

January 25, 2012

Fewer California borrowers entered foreclosure during the final three months of the year, according to new data. But the holiday respite, coming after a sharp summer increase in new defaults, may not last.

The number of California homes entering foreclosure in the fourth quarter fell 11.9% from the same period in 2010 to the second-lowest level over the last four years, said DataQuick, a real estate information firm in San Diego. A total of 61,517 notices of default, which are filed to initiate foreclosures, were recorded on California properties during the fourth quarter. That was a 13.7% drop from the third quarter of 2011.

Some economists say California and other states will probably see an increase in foreclosure actions as banks deal more aggressively with seriously delinquent mortgages. That increase probably will push home prices lower.

"There is just a lot of volatility in the data right now because there are seasonal factors that are affecting the foreclosure numbers," said Celia Chen, a housing economist with Moody's Analytics. "I think we are heading upward, but it is not going to be a solid trend up."

Default notice filings fell sharply in December, particularly those involving loans from Bank of America and Bank of New York Mellon, and helped drag down the overall quarterly numbers. Average daily filings on behalf of Bank of New York Mellon dropped 75% from November to December; filings on behalf of Bank of America dropped 50%, Wells Fargo 20% and JPMorgan Chase 13%, DataQuick said Tuesday.

The number of homes taken back through the foreclosure process also fell, by 11.8% from a year earlier to 31,260. The majority of the loans entering the foreclosure process in the fourth quarter were made in 2005 to 2007, when poor lending practices by major institutions were rampant.

Californian homeowners were a median nine months behind on their payments when they received a notice of default from their lender. Among the state's largest counties, mortgages in San Francisco, Marin and San Mateo counties were the least likely to go into foreclosure. Homes were most likely to enter the foreclosure process in Sacramento, San Joaquin and Stanislaus counties, according to DataQuick.

In Southern California, the number of default notices filed on properties fell 10.2% from a year earlier, and the number of homes taken back by banks fell 11%.

Stuart Gabriel, director of UCLA's Ziman Center for Real Estate, found reason for optimism in the figures.

"At this point in the cycle, there is little reticence by large financial institutions to put properties into the foreclosure process," he said. "The housing cycle is showing signs of turning."

Many foreclosures were delayed in 2011 as banks worked through issues surrounding mortgage servicing and foreclosure. Settlement negotiations among attorneys general, federal agencies and the mortgage industry over foreclosure and mortgage servicing abuses dragged on through most of last year.

Analysts attributed the delays to the uncertainty over the outcome of those talks. If a deal is struck among the parties and new foreclosure processes by banks are put in place, some analysts say the foreclosure machinery could ramp up again.

Those negotiations continue to inch forward but could still fall apart. State attorneys general have received drafts of the deal with the banks, a $25-billion settlement that would overhaul foreclosure and mortgage servicing practices, according to two people familiar with the negotiations who aren't authorized to speak publicly.

A key component to any strong deal would be California's participation. State Atty. Gen. Kamala D. Harris, who must make that decision for the Golden State, has not said whether she will sign on. Harris walked away from talks with the banks last year, saying they were asking for too much release from liability, but since then certain provisions have been added to the deal with the aim of getting her back to the table.

On Tuesday, the Center for Responsible Lending gave the proposed $25-billion deal a tentative thumbs up, calling it "an important step forward in addressing foreclosure abuses." The nonpartisan advocacy group noted that the deal would "provide an important template for ways banks can use principal reduction to reduce unnecessary foreclosures and put the country back on a path to economic recovery."

Principal reduction is the writing down of mortgage debt so that homes that are "underwater," when the mortgage balance exceeds the value of the home, become more attractive and affordable for troubled homeowners to stay in. The settlement would include a principal reduction element that could write down the mortgage debt of certain homeowners by an average of $20,000, according to a person familiar with the deal.

But several other consumer groups and some lawmakers remain leery of the possible deal, saying it lets lenders off the hook too easily.