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Foreclosure activity slows in California as banks hold back

Mortgage default notices - the first step in foreclosure - dropped by 10.3 percent in California last quarter. That's due to loan modifications and banks' unwillingness to dump more homes on the market, say experts.

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Orange County sheriff's deputy Dan Mendoza views a foreclosed home he has arrived to enforce an eviction order on in Fullerton, California, in this June 23, 2009 file photograph. California was one of the places hardest hit by foreclosures, but has seen foreclosure rates slow in the past 3 months.

Lucy Nicholson/Reuters/File

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California, the state which has led the nation in home foreclosures, has finally seen a significant drop in the number of mortgage defaults and house repossessions. But many economists say the trend is less about improved economic conditions than about banks holding off on foreclosure or renegotiating loan agreements.

The number of mortgage default notices fell 10.3 percent in the past three months compared to the previous quarter, dropping to 111,689 in the July through September period, according to San Diego-based MDA DataQuick. Repossessions were down 37 percent over the previous year.

Lenders may have intentionally slowed down the pace of foreclosure proceedings, DataQuick says. Default notices are the first step in the foreclosure process.

“It’s not out of the goodness of their hearts,” says Andrew LePage, DataQuick senior analyst. “Foreclosures are expensive and the more homes you dump on the market, the more you drive down prices and it becomes a vicious cycle.” Mr. LePage says the industry is in the early stages of “trying alternatives … such as short sales [selling for less than is owed on the mortgage] and loan modifications.”

California is home to 1 in 9 Americans and has 8.5 million houses.

“There is no reason to believe this is a trend and that the worst has passed,” agrees Ginna Green, spokesperson for the California office of Center for Responsible Lending. She points out that the state is still at 12.5 percent unemployment.

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