Foreclosures dropped significantly in the second quarter of 2012 — a good sign for the housing market. However, notice of default (NOD) filings decreased only slightly. The number of real estate owned property (REO) resales actually increased from the first quarter of 2012.

33,800 REO resales took place in the second quarter of 2012:

  • ·         consisting of 28% of all California resale activity;
  • ·         up 6% from the first quarter of 2012; and
  • ·         down 14% from one year earlier.

54,615 NODs were recorded in California in the second quarter of 2012,

  • ·         down 3% from 56,258 in the prior quarter; and
  • ·         down 4% from 56,633 one year earlier.

NOD volume peaked in the first quarter of 2009 with 135,431 NODs recorded.

The time taken to process a foreclosure following an NOD also continues to decrease, as lenders work through backlogged inventory. It currently takes an average of eight months after the recording of the NOD to complete a trustee’s foreclosure sale in California, down from nine months the previous quarter and ten months one year earlier.

21,851 foreclosures, marked by trustee’s deeds (TDs),were recorded in the second quarter of 2012:

  • down 28% from 30,261 in the first quarter of 2012, and
  • 49% lower than the 42,465 foreclosure sales one year earlier.

This marks 18 months of continuous decline in foreclosures—a highly positive sign for the real estate market since the reduction is mostly the result of fee producing shortsales mostly enjoyed by all agents.

Among California’s largest counties, the greatest one-year drops in foreclosures took place in San Bernardino (-51%), Riverside (-50%),San Diego (-50%), Contra Costa (-50%) and Los Angeles (-47%)counties.

Zip codes with median sale prices below $200,000 collectively saw 4.3 homes foreclosed on for every 1,000 homes. In comparison, zip codes with median prices between $200,000 and $800,000 saw only 1.9 foreclosures per 1,000. Foreclosures were negligible (less than one per every thousand) in areas with average prices over $800,000.

40% of homes sold at trustee’s sales were bought by individuals other than the lender or government groups — up from 28% last year. This third-party high-bidder situation indicates speculators remain increasingly optimistic about future resale pricing.

Related articles:

REO resales in CA

NODs and Trustee’s Deeds: Grim signs of real estate’s present condition

Rentiers and debtors: why can’t they get along?

first tuesday take

The recent dramatic drop in foreclosures is likely an anomaly as are all other monthly or quarterly data which shows signs of recovery. However, overall trends in NODs and foreclosures indicate a gradual decrease in foreclosures for the next several quarters.

Nonetheless, foreclosures won’t return to pre-recession levels without support from increased employment and rising home prices.Eminent domain taking of negative equity mortgages by counties will help cut this foreclosure rate even more but reduce fee producing shortsales and REO resales.

A sidestep lenders increasingly choose to make in the NOD to foreclosure process includes shortsale transactions – a lender’s “Plan B” to avoid taking on additional REO property. Shortsales in the second quarter of 2012 totaled 20,141, 18% of resale activity in California. Shortsale volume was up 13% from the first quarter, evidence lenders are quickly resorting to their fallback plans.

The number of NODs is a good predictor of future foreclosures, as 36% of all NODs currently go on to trustee’s sale. The large drop in foreclosures during the second quarter of 2012 reflects a similarly large drop in NODs which occurred in the fourth quarter of 2011. This lag is due to the time it takes a home to complete the foreclosure process.

Although low, foreclosures will remain higher than average, due to the impending expiration of low, interest-only payments borrowers of home equity lines of credit (HELOCs). Homeowners with these loans (proliferate during the Millennium Boom) have made little to no dent on their principal, meaning they are deeply underwater, and will soon be required to increase these payments on their black-hole assets.

Since home prices will not rise enough to bring these borrowers out of negative equity for several years, these homeowners – and others – will eventually become frustrated, or simply run out of money, and default.

Negative equity properties are damaging to the standard of living in our society and must be promptly cleared out by lenders or owners in order to put an end to the drag they create on the economy— a process not likely to be concluded until roughly 2015-2016.

Related articles:

Batten-down the hatches: home equity loan defaults approach

Wobbling housing market reflects wobbling economy

Shiller: cramdowns are the cure

Re: California Q2 Foreclosure Activity Lowest in Five Years from DataQuick