Notices of Default (NODs) in California totaled 25,148 this July. This is a slight decline from 26,421 in June and a roughly 50% decline from NODs recorded one year ago. [For a chart and more information concerning NOD volume in California, see the July 2010 first tuesday article, NODs and Trustee’s Deeds: Grim signs of real estate’s present condition.]

Notices of Trustee’s Sale (NOTS) in California totaled 28,310 this July. This is a decline of nearly 20% from 34,913 in June and a 30% decline from NOTSs recorded one year ago. [For more information concerning NOTS volume in California, see the July 2010 first tuesday article, Sharp increase in canceled NODs for June.]

first tuesday take: Government-sponsored programs, such as the Home Affordable Modification Program (HAMP), have only delayed the inevitable and stalled the real estate recovery since lenders are not being forced to rid their balance sheets of non-performing and over-valued mortgages. Likewise, government assistance for homeowners has been most inadequate since the negative equity issue of California’s over 2,000,000 hopelessly underwater homeowners is not being addressed. [For more information regarding the floundering Cal-HAMP program, see the June 2010 first tuesday article, Cal-HAMP: how $700 million of federal aid is proposed to be allocated in California.]

Current foreclosure data simply does not add-up: mortgage delinquencies are on the rise without abatement, yet NODs and NOTSs are declining. Of the 70,051 NODs reported in Q2 of this year, only 47,669 were actually sold at a trustee’s sale. With a mere 60% of NOD’s actually going to trustee’s sale, lenders are clearly postponing reporting their losses by dragging their feet to avoid completing the foreclosure process. They are taking full advantage of the delays made possible by government sponsored extend-and-pretend mortgage modification programs to stave-off an immediate declaration of insolvency, despite the inevitable trustee’s sale.

These sophisticated methods of lender procrastination accomplish little else than to delay the coming recovery in the real estate market. Delaying foreclosures comforts lenders and homeowners alike, but does nothing to solve the epidemic of lender and homeowner insolvency. The extension of loan terms and temporary interest rate reductions do nothing for underwater homeowners who are beginning to recognize that loan-to-value (LTV) ratios have become permanently unbalanced.

Property values will slowly rise over the next decade, but only at the rate of consumer inflation — comparable in movement to the two decades following the Great Depression and World War II. As this realization sets in, underwater homeowners will feel increasingly hopeless as they sense they will have to wait 15 to 20 years for their property value to catch up to the mortgage amount they now owe.

In order for NODs and NOTSs to return to acceptable long-term levels, as we had in the late 1990s, bankruptcy judges must be given back their pre-2006 authority to cram down principal loan balances. The sooner lenders are forced to reduce mortgage loan balances on California homes to reflect current property values, the faster the foreclosure wave will permanently ebb, leaving responsible lending, consumer confidence and a recovering real estate market in its wake. [For a list of first tuesday articles dealing with the merits of cramdowns, see the January 2010 first tuesday article, Cramdowns, cramdowns, cramdowns!]

Re: “July California Foreclosure Report” from