Mortgage defaults continue to decline in Sonoma County, dropping this spring to the lowest level in four years, according to a new report.
Between April and June, lenders sent 738 default notices to Sonoma County homeowners who had fallen behind on their mortgages, down 19 percent from the same period a year ago.
Default notices, the first formal step in the foreclosure process, are a closely watched barometer of stress within the housing market. They have now subsided to levels not seen in Sonoma County since the second quarter of 2007, when lenders recorded 462 default notices, according to DataQuick, a San Diego-based real estate information service.
Despite the decline, the number of foreclosures remains abnormally high. Every day, banks take back five homes in Sonoma County in foreclosure proceedings. And analysts and real estate agents cautioned that the housing crisis remains far from over.
"There's no doubt now that, four years into this, we've made some progress in cleaning up negative equity," said Sean O'Toole, founder and CEO of ForeclosureRadar in Discovery Bay. "But still, if you look at the totals, we're still just a fraction of the way through the larger problem of getting back to a healthy level of home ownership with reasonable equity."
Default notices and foreclosures began to surge in late 2007 as home prices plunged around the country.
In Sonoma County, foreclosures averaged about 170 a year from 1992 to 2006. But they reached a record 2,820 in 2008. During the next two years, the number of foreclosures has dropped to about 2,000 annually — roughly the same pace seen during the first six months of this year.
During the second quarter, Sonoma County borrowers lost 495 houses and condominiums in foreclosure proceedings. Foreclosures were down almost 5 percent from the first quarter but up nearly 2 percent from a year ago.
The decline in mortgage defaults is puzzling, but may be a sign the housing market is stabilizing, said John Walsh, DataQuick president. Defaults tumbled 19 percent in the Bay Area and across the state during the second quarter, compared to a year ago.
"A lot of theories are being floated as to why the numbers are down," Walsh said. "Bank policy changes. Legal challenges. Politics. Holding back temporarily so as not to flood the market. The fact of the matter is that no one really knows, outside of lending and servicing industry insiders.
"One thing is certain: Homeowner distress spreads fastest when home price declines are steepest. And it now appears likely that, barring some new economic shock, the worst of the price declines are behind us," Walsh said.
O'Toole suggested that foreclosures are still being delayed by banks that are reluctant to take back homes because the lenders then must report the losses from the loans.
James Madison, a real estate agent who specializes in foreclosure properties, said some reduction in default notices and foreclosures may be tied to an increase in short sales, transactions where banks allow the home to be sold for less than the amount owed on the mortgage. Even so, he still thinks several more years must pass before the level of distressed properties drops significantly.
"This isn't a sign that we're out of the woods," said Madison, an agent with Coldwell Banker in Santa Rosa.
Doug Solwick, a broker associate with Keller Williams Realty in Santa Rosa, said the foreclosures have combined with high unemployment and low consumer confidence to create ongoing uncertainty in the housing market. He recently had conversations with several homeowners who have home equity but still wonder whether now is the time to sell their houses and move from the county.
"They don't know what to do," Solwick said.
The median California homeowner was six months behind on payments when the lender filed the Notice of Default last quarter, according to DataQuick. The borrower owed $16,525 on a $324,413 mortgage. Most of the loans going into default today were made from 2005 to 2007.
Statewide, default notices for the quarter fell to 56,633, the lowest number in four years.
Californians lost 42,465 homes to foreclosure during the quarter, down 1 percent from the prior quarter and down almost 11 percent from a year ago.
The all-time peak was 79,511 foreclosures lost in the third quarter of 2008. For the county, the peak was 933 homes lost during the same period.
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