FORECLOSURE ACTIVITY UP BY BIGGEST MARGIN IN 14 YEARS MORTGAGE APPLICATIONS DROPPING AS MARKET COOLS.

Byline: GREGORY J. WILCOX Staff Writer

Foreclosure activity across California soared by its biggest margin in 14 years during the second quarter in response to diminishing price appreciation, but still remained well below average levels, an industry tracker said Wednesday.

And in another sign that the housing market boom is over, mortgage applications last week sank to their lowest level in four years.

During the April-through-June period, lenders sent 20,752 default notices to homeowners in the state, up 67.2 percent from the year-ago period and up 10.5 percent from the first quarter, said DataQuick Information Systems.

That's the biggest annual quarterly increase since La Jolla-based DataQuick began mining these numbers in 1992.

Activity peaked in the first quarter of 1996, when 59,897 defaults were filed and hit a low of 12,145 notices during the third quarter of 2004.

Last quarter's total was the highest since 25,511 notices were filed in first-quarter 2003.

Despite the yearly surge, the second-quarter total remained well below the quarterly average of 32,762 default notices, DataQuick said.

Default notices are formal documents filed with county recorder's offices and mark the first step in the foreclosure process.

An increase was expected because activity is coming up from historical lows, sales have fallen under last year's level and appreciation has sunk into single digits in most markets.

``This is an important trend to watch, but doesn't strike us as ominous,'' Marshall Prentice, DataQuick's president, said in a statement.

Other factors in play include the amount of equity owners have left, the type of mortgage and how long the homeowner has held it.

Even though prices are flattening, the increased activity should not drag them down.

``We still think we would have to roughly double from today's level to see a meaningful impact on prices, and a doubling would just get us back to average,'' said DataQuick analyst Andrew LaPage.

The company's report showed that:

In Los Angeles County, activity increased 45.3 percent to 4,586 default notices. The quarterly average is 11,097.

In Ventura County, activity increased 80.8 percent to 452 notices. The quarterly average is 683 notices.

In Southern California, activity increased 69.5 percent to 12,222 notices; the quarterly average is 23,201.

Currently, only about 7 percent of homeowners who find themselves in default lose their homes to foreclosure.

But this is just one indication that the housing market has turned down.

Those numbers came out the same day that the Washington, D.C.-based Mortgage Bankers Association weekly survey showed more weakness in the lending sector.

Its Market Composite Index, a measure of mortgage loan application volume, for the week ended July 28 plunged an annual 29 percent to 527.6 and slipped 1.2 percent from 533.8 one week earlier on a seasonally adjusted basis.

This is the lowest that the index has been since May 2002.

The seasonally adjusted Purchase Index decreased by 3.3 percent to 376.2 from 389.0 the previous week and the Refinance Index increased by 2.3 percent to 1,417.2 from 1,385.2 one week earlier. The Purchase Index is at its lowest since November 2003.

Jay Brinkmann, vice president of research at the MBA, expects the sales decline in the market to continue.

``There is noting in economic fundamentals in household creation or job creation that is looking toward any kind of meltdown in housing prices. I think we are just getting back to a more normal market,'' he said.

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SOURCE: DataQuick Information Systems