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36% of all resale activity in California last quarter was attributed to real estate owned (REO) inventory — down from 50% for the same period last year. REO resales are down for the fifth consecutive quarter, with the low-tier areas showing the most noticeable decline.

70,051 Notices of Default (NODs) were recorded in the first quarter of 2010, down from 124,562 in the first quarter of 2009. The regions with the most low-tier properties have seen the greatest decrease, accounting for 40% of default activity in the state, a measureable decline from 45 % last year.

Fewer NODs were recorded in the second quarter of 2010 than in any quarter since the second quarter of 2007. The volume of NODs peaked in the first quarter of 2009 with 135,431 NODs recorded. Dataquick attributes this decline in NOD activity to accommodating lenders who are increasingly willing to modify the loans of troubled homeowners, coupled with short sales.

Both high- and low-tier properties saw significant decreases in NODs recorded. Statewide, high-tier regions saw a 30.4% drop from the second quarter of 2009. Low-tier areas saw a decrease of 46.2%. However, less expensive neighborhoods continue to see the highest concentration of NODs. For every 1,000 homes in low- to mid-range areas, there were 10.6 NODs during the second quarter. For every 1,000 homes in high-tier areas, there were three NODs.

Notice of Trustee’s (NOTS) recordings in California’s most affluent zip codes are at their highest levels in four years, although they are experiencing only 1.2 NOTS recorded for every 1,000 homes. In low-tier areas, 9.9 NOTS were recorded for every 1,000 homes, a heady 10% increase from the previous quarter, but an insignicant 4.5% drop from last year.

Because of the significant drop in default notices in low-tier areas, NODs in high-tier neighborhoods now make up a larger percentage of all NODs. 6.1% of NODs filed in the most affluent counties of California were on homes with mortgages for $800,000 or more, an increase from 5.7% a year ago. This quarter marks the highest level of NODs for the wealthiest areas in the past five years.

It took an average of 9.1 months to complete a trustee’s sale following the recording of the NOD in the second quarter of 2010. Last year, foreclosure proceedings took an average of 6.4 months. Dataquick sees the extended processing time as a product of lender backlogs along with the pursuit of loan modifications and short sales to circumvent foreclosure.

85.7% of all foreclosures were resold on the open market by the end of June, compared to June 2009’s rate of 83.5%. It is estimated that 25.5% of homes sold at trustee’s sales were bought by individuals other than the lender or government groups — up from 17.9% last year.

first tuesday take: The infamous five-year hybrid adjustable rate mortgages (ARMs) originated during the height of the Millennium Boom are scheduled to reset upward between 2010 and 2011, meaning California still has quite a journey ahead before it finds relief. The second half of 2010 will bring with it an abundance of defaults, delinquencies and foreclosures as the negative equity homeowning public becomes ever better informed about their financial options.

Lenders are relentless in their attempt to prevent foreclosure, and are seemingly much more willing (they are talking about it) to work with homeowners towards a short sale or deed-in-lieu of foreclosure. This is evidenced by the slight but consistent upward trend of short sales, which are likely preventing many of the NODs from going to trustee’s sale.

Although lenders are doing their best to avoid foreclosure, many homeowners who are granted a modification end up defaulting again. Nationally, 60% of modifications end up redefaulting in just one year after modification, which is why the modification programs are labeled as “extend and pretend.” Lenders are thus stalling for time and prolonging the inevitable. The 9.1 month foreclosure processing period (normally 4 months) is the result of lenders’ desire to delay the reporting of their losses and their lack of trained staff to process the massive backlog.

Lenders can eliminate their paperwork backlog by hiring hundreds of underemployed real estate brokers and sales agents, as they are familiar with the processing of real estate documents, especially if they work for a larger brokerage office. [For more information and trends on NOD and NOTS in California, see first tuesday’s Market Chart NODs and Trustee’s Deeds: Grim signs of real estate’s present condition.]

Re: “California Mortgage Defaults Hit Three-Year Low; Foreclosures Rise” from Dataquick