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California's Foreclosure Starts Collapse in Second Quarter

Call them what you want...the Plunge Protection Team, The Powers That Be, or simply Government Sachs...but somewhere the decision continues to be made to not foreclose on very many homes.

The shadow inventory is growing daily, but as long as we don't actually foreclose on houses, maybe we can pretend, at least for a little while longer, that the problem isn't really there.

DataQuick reports California Mortgage Defaults Hit Three-Year Low

The number of California homes pushed into the formal foreclosure process between April and June dropped for the fifth consecutive quarter to the lowest level in three years. The declines were greatest in the most affordable areas, where foreclosure activity continues to fall from extremely high levels over the past two years, a real estate information service reported.A total of 70,051 Notices of Default ("NODs") were filed at county recorder offices during the April-to-June period. That was down 13.6 percent from 81,054 for the prior quarter, and down 43.8 percent from 124,562 in second-quarter 2009, according to San Diego-based MDA DataQuick.

Last quarter's total was the lowest since second-quarter 2007, when 53,943 NODs were recorded. The peak was in first-quarter 2009 when 135,431 homeowners received foreclosure notices.

"Obviously, motivated sellers and accommodating lenders have played a part in bringing the default filings down, especially when it comes to short sales. Public policy has also been a factor. We also need to remember that prices have come up off bottom over the past year. If they continue to rise, fewer homeowners will find themselves under water, which is a significant factor in letting a home go," said John Walsh, DataQuick president.

The NOD is the first step in the foreclosure process. This official notice can be filed when a homeowner is 30 days late on a payment, but often isn't filed for 6 months or more (even 2 years in some cases!). After the NOD, the bank must wait 120 days before filing a Notice of Trustee Sale (NYSEMKT:NTS), then another 21 days before actually "selling" the home on the courthouse steps.

The fact that NOD's are plunging  implies that, even by the start of 2011, we still won't see an increase of foreclosures for sale. The banks and government are committed to extend-and-pretend policies and I wonder how long they can keep it up. It's already been 23 months...

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