From Bloomberg.com Oct 18 by Daniel Taub.

California home-loan defaults rose to their highest level in four and a half years in the third quarter as lower sales of houses and condominiums and slowing price gains made it harder for homeowners to sell and pay off mortgages.

Banks and other lenders sent 26,705 default notices to California homeowners in the third quarter, more than double the 12,606 sent a year earlier and up 28.3 percent from the second quarter, La Jolla, California-based DataQuick Information Systems said today in a statement.

Homeowners are having a harder time getting out of debt by selling, DataQuick said. Home prices in Southern California last month had their smallest year-over-year increase in almost a decade, and San Francisco Bay Area prices dropped for the first time in four and a half years.

``Price appreciation is evaporating,'' Andrew LePage, a DataQuick analyst, said in an interview. ``That gives people fewer options to get out of a pinch.''

California sales mirror a national trend. U.S. new-house prices will fall this year for the first time since 1991 and existing homes will have the smallest gain ever, the National Association of Realtors said last week.

In California, more default notices were sent in the third quarter than any time since the first quarter of 2002, when 30,225 default notices were sent, the research company said.

Notices of defaults are the first step in foreclosing on a home. Most homeowners stop the foreclosure process by bringing their mortgage payments current, refinancing or selling their homes to pay off what they owe.

Losing Homes

Still, about 19 percent of homeowners who were in default earlier this year lost their homes to foreclosure in the third quarter. That's up from 6 percent a year earlier, DataQuick said. The year-ago number was lower than normal because rising prices and strong demand for homes at the time allowed owners to sell more easily, LePage said. Since 1992, when DataQuick began tracking numbers, the monthly median was 21.8 percent.

The median age of the home loans that went into default in the third quarter was 14 months. More than half the loans were originated in 2005. Newer loans are more likely to go into default because smaller price rises have prevented owners from building up equity in their homes, making it harder for them to take out additional loans to bring payments current, LePage said.

On primary mortgages, homeowners were five months behind on their payments on a median basis when their lenders started the default process. Borrowers owed a median $9,829 on a median $306,000 mortgage.

On a loan-by-loan basis, mortgages were most likely to go into default in Fresno, Merced and Riverside counties, and least likely to go into default in Marin, Napa and San Francisco counties in the third quarter. The percentage of mortgages in default historically has been higher in lower-cost inland areas than in pricier coastal markets, DataQuick said.