Mortgage Delinquencies Increasing

The number of default notices sent to California homeowners rose in the last three months of 2005 as the rate of price increases slowed, a real estate research firm said Thursday.

The delinquency notices serve as an early indicator of possible foreclosures. Typically, about 5% of homeowners who receive such notices end up losing their homes.

Lenders sent 14,999 default notices to California homeowners from October through December, according to DataQuick Information Systems.

All areas of the state saw a rise in delinquency notices. The counties with the largest annual percentage increase in default notices were Napa, San Luis Obispo, San Francisco, Riverside, Orange and San Diego.

The fourth-quarter total represents a 19% increase over the 12,606 notices sent out in the third quarter and a 15.6% hike over the 12,978 notices sent in the same period in 2004, the La Jolla-based firm said.

The increase in delinquencies probably is a result of the decline in home appreciation in many markets over the last couple of years, DataQuick analyst John Karevoll said.

While home prices were rising, homeowners were able to tap a growing pool of equity for loans or refinancing if they found themselves in financial straits.

“But when prices don’t go up as fast, you don’t have that built-up equity like you did before,” Karevoll said. “People won’t have that buffer the way they did a year or two ago.”

And financially distressed homeowners have largely been able to avoid foreclosures because rising real estate prices allow them to sell their properties instead.

The state’s annual home appreciation rate peaked in the second quarter of 2004 at 22.8%. It has declined steadily since then. It was 14.5% in the fourth quarter of 2005, DataQuick said.

That rate is expected to decline below 10% this year.

Although many homeowners in recent years took on adjustable-rate mortgages or interest-only loans that offer a lower initial monthly payment, there’s no evidence that those loans adjusting to a higher rate are behind the rising number of default notices, Karevoll said.

“We’re not seeing that yet,” he said.

The number of homeowners in default has gone up since bottoming in the third quarter of 2004, when 12,145 default notices went out. The highest number of notices recorded by DataQuick since 1992 was in the first quarter of 1996 -- 59,897.