Foreclosure resales accounted for 42.6 % of all California resales recorded in the first quarter of 2010, up from 40.6% in the fourth quarter of 2009, and down from 57.8% one year ago, the peak of the foreclosure resale trend.

81,054 notices of default (NODs) were recorded on 79,457 homes last quarter, compared with 84,568 NODs recorded in the previous quarter and 135,431 recorded one year ago. Multiple defaults on the same home are dropping. The median origination month for an NOD loan in the last quarter was still July of 2006, the same month as the previous four quarters. However, loans originated in 2007 are beginning to show up in the NOD loan statistics.

42,857 trustee’s deeds were recorded last quarter, down from 51,060 the previous quarter and down from the 43,620 recorded one year ago. The peak of trustee’s deeds recordings was in the third quarter of 2008 with 79,511 trustee’s deeds recorded.

The reason for the drop in defaults and foreclosures is attributable in part to changing lender and government policies. Defaults in low-tier housing markets make up 40.9% of the state’s total defaults; one year ago, they made up 47.5%. Defaults are increasingly making their way to the mid-tier and high-tier neighborhoods.

first tuesday take: The foreclosure numbers are still in flux as lenders are playing their strategies closer to the cuff to avoid insolvency — a fine line to walk. Taking the property from a homeowner in foreclosure does not cause a lender to report a loss; they simply bid in the property at the loan amount and book it as a push.

However, when the property is placed on the market as an REO, the lender has committed itself to eventually reporting the loss – so they hold it off the market to avoid reporting the loss. It is on the sale of the REO inventory that the loss is taken, the difference between the booked loan amount and the net sales proceeds.   Taking a loss on REO property is a much more financially burdensome process than allowing a homeowner to stay in the home with a principal reduction, but both result in losses that chip away at the illusion of lender solvency. They’re getting creative out there: witness Bank of America’s recent “principal reduction” ploy…

The delinquencies, defaults and trustee’s sales in California are busting at the seams – double the annual rates seen with the last real estate recovery period of the mid-90s. The defaults are either going to be foreclosed upon, or kicked down the road, but they are still not being fixed and no programs or rules are in place to adequately address them. As time moves on, negative equity homeowners learn more about their Put Option to walk and the extent of the consequences of defaulting, and as they do, their attitudes about strategically defaulting are changing. Stay tuned for more clever lender tricks as the old insolvency song-and-dance routine drags on.

Re: “California Foreclosure Activity Declines Again” from Dataquick