Foreclosures and default notices, which deluged California and the Bay Area just a few years ago, have now slowed to a trickle as the economy and the housing market stabilize.
Rising home prices, increased job creation and government foreclosure-prevention efforts caused mortgage distress to plummet in the Bay Area and California in the third quarter, a real estate service reported Tuesday.
"We are getting close to normal, to the extent we can define normal in a boom-bust state," said Andrew LePage, an analyst with San Diego's DataQuick, which produced the report. "Assuming the economic recovery stays on track, this is the final mop-up stage of the foreclosure mess - with the caveat that there are still thousands of distressed cases in limbo."
In the nine-county Bay Area, a total of 1,035 homes and condos were sold at foreclosure auctions in July, August and September, about a third of the 3,224 foreclosures at the same time last year, according to DataQuick. At the height of the housing crisis, in the second quarter of 2008, the number of Bay Area foreclosures - 12,093 - was more than tenfold higher.
Statewide, the 8,030 foreclosures in the third quarter likewise were about a third of last year's number.
Default notices, the first step in the foreclosure process, also fell dramatically.
In the Bay Area, lenders sent 2,776 notices of default in the third quarter, down 62 percent from the same time last year. Default notices for the region peaked at 19,983 in the second quarter of 2009.
Statewide, the 20,314 default notices were down 59 percent from a year earlier.
Home price surgeWhile a range of factors are wiping out foreclosures, the robust surge in home prices has made the biggest difference this year, LePage said. "Far fewer people are underwater," he said. "That gives them options; they can sell, refinance or get some family help. Their situations don't seem as hopeless." Even people who still owe more than their home is worth aren't as deep in the hole, so it's less likely they will walk away from their homes. "If, a few years back, you were 40 percent underwater and now you're maybe 5 to 10 percent underwater, you are more likely to hang in there, as there's light at the end of the tunnel," LePage said.
There are still lingering concerns. Many distressed homeowners have mortgage modifications, in which lenders reduced their monthly payments. Whether they can meet those obligations, whether lenders will make the changes permanent and whether other struggling homeowners can get their payments reduced, are all factors that remain up in the air.
"We don't know what the outcome will be for those thousands of properties," LePage said. "But the shadow inventory (potential future foreclosures) is nowhere near what it was three or four years ago. Could we see a large wave of foreclosure activity reminiscent of the one we just went though? Even in the worst-case scenario, that does not seem likely."
Counselors' viewsCounselors who help struggling homeowners said the change is palpable.
"We see about half as many" new clients this year compared with last, said Katrina Vizinau, coordinator of the Restoring Ownership Opportunities Together program at the Community Housing Development Corp. of North Richmond, which works in Contra Costa, Alameda and Solano counties.
The most common circumstances are either people who have been rejected by their servicer for a loan modification after several months of applying, or people who have a modification but can no longer afford even the reduced payment, she said.
Earl and Lorna Phillips of San Francisco are among homeowners still struggling to hang on. The couple have an adjustable-rate mortgage on their Richmond District home with escalating payments that they find unaffordable.
After Earl Phillips, a school bus driver, had two bouts of serious illness, they fell behind on the mortgage and property taxes. Separately, their loan servicer misplaced some payments when it merged with their previous bank and charged them late fees and penalties, he said.
While they caught up on payments, their efforts to get a loan modification have been fruitless, Phillips said. But their situation also crystallizes the change in types of distress.
Equity but bad creditTheir home is worth $950,000; they owe $650,000, meaning they have substantial equity. Phillips said they cannot refinance because their credit was so tarnished by the late payments.
"Everyone tells me, because you're not underwater and you have equity, the bank feels you should just sell your house," he said. The couple make ends meet by sharing their house with their son, his wife and three children.
Negative amortizationGale Rosboro of San Francisco also has an adjustable-rate mortgage that allowed her to make minimum payments that didn't cover the interest due and instead increased her principal owed. Such negative amortization loans, which tripped up many homeowners, are no longer offered.
Rosboro said her mortgage debt started at $409,000 seven years ago but because she made the minimum payments, it now has hit $609,000, while her house is worth about $650,000. The monthly amount owed has risen continuously.
"I haven't missed a payment, but I'm always behind," she said. "I haven't sent the September payment yet, for instance, because you have 30 days. "She's been turned down for a loan modification numerous times, despite having stable income from her job teaching literacy and ESL at the San Bruno County Jail. Rosboro said she wants to hang on to the house for the sake of her three daughters. "I hope they won't have to struggle like I did," she said.