Is Sacramento's foreclosure crisis finally over? Not quite yet, experts said, but a report released Tuesday suggests it's winding down.
Figures from DataQuick showed that notices of default, which start the formal foreclosure process, have plunged to levels not seen in the Sacramento region since the waning days of the housing boom in late 2005.
The San Diego-based real estate information service also reported that trustee deeds, filed when a home is foreclosed, fell to their lowest levels in the region since foreclosures began multiplying in late 2006.
Experts said an improving housing market and new legal protections for homeowners combined to drastically reduce the number of people losing their homes. The Sacramento numbers mirror an easing of foreclosures statewide.
"Is the crisis over? No, but it's gradually fading away," said DataQuick analyst Andrew LePage.
The main drivers of the improvement are rising home values and a stronger economy, DataQuick said.
Foreclosures and foreclosure filings have been declining steadily for two years. The first three months of 2013 saw a particularly steep decline, which DataQuick said could stem in part from California's new Homeowners Bill of Rights, which took effect on Jan. 1.
The legislation gives homeowners additional protections in the foreclosure process and may be slowing down lenders as they adjust their practices, LePage said.
Michael Troncoso, chief counsel to state Attorney General Kamala Harris, who championed the law, said Tuesday that the new protections include a ban on so-called dual tracking, in which a lender proceeded with foreclosure even though a homeowner had applied for a loan modification.
"That's why we see fewer foreclosure starts," Troncoso said. "You can't just go behind homeowners' backs and foreclose on them if they're negotiating with banks in good faith."
The $25 billion National Mortgage Settlement may also be having an effect, he said. Reached last year among 49 states, the federal government and five major lenders, it provides incentives for banks to pursue foreclosure alternatives such as short sales and principal reductions.
Troncoso warned that new laws have temporarily curtailed foreclosure activity in the past, with lenders picking up the pace again later.
This time, though, LePage said the improving market may keep foreclosures in check.
"If the economy picks up a little steam and home prices appreciate more, fewer people are going to be underwater," he said. "When you're not underwater, you can refinance or sell."
Homeowners who are nearer to the point of not owing more than their homes are worth are more likely to try to hang on and work something out with their banks, said Pam Canada, head of NeighborWorks Home Ownership Center in Sacramento.
"Before, there was strategic default," she said. "Homeowners would walk away. We don't that see that anymore."
Current market conditions, with a low supply of homes for sale and rising demand, "give people a sense of confidence about the future," Canada added. "It's more hopeful. People have more choices, too."
She cited the federal program known as HARP 2.0 that lets many underwater borrowers refinance.
This government help for distressed homeowners arrived just as real estate began to improve, easing the crisis. Default notices in Sacramento County fell in the first quarter of this year by more than 70 percent compared with the same period last year, DataQuick said.
The 1,022 default notices filed in the first three months of this year were the fewest of any quarter since the fourth quarter of 2005, when homes in many areas sold for twice what they do now.
A few years later, in 2008 and 2009, lenders filed more than 7,000 notices of default in some quarters as a huge wave of foreclosures swept through Sacramento.
At the peak, in the third quarter of 2008, there were more than 5,600 trustee deeds filed during one three-month period.
In contrast, during the first quarter of this year, 917 trustee deeds were filed in Sacramento County – the lowest number since foreclosures started picking up in late 2006.
The wave of home repossessions that followed inflicted deep pain on the region and its inhabitants. More than 65,000 foreclosed homes flooded the market in Sacramento County alone during the six years after the crash, depressing home prices further and sending the regional economy into a downward spiral.
Today, Sacramento is slowly pulling out.
Investors, such as Wall Street giant Blackstone, have snapped up foreclosed homes by the hundreds, shrinking inventory and bolstering home prices. At the same time, traditional buyers are trickling back to the market, seeking to take advantage of historically low interest rates.
Rising demand and a record-low inventory of homes for sale are pushing prices upward. Last week, DataQuick reported the median home price in Sacramento County jumped by more than 31 percent in March compared with the same month last year. It was the biggest year-over-year increase since 1990, the firm said.
Today, there's a sense that the flood of foreclosures is drying up and the market is trending upward, said Chris Little, president of the Sacramento Association of Realtors.
The foreclosure pipeline, he said, has "been cleared out. It's like the clog is gone and things are flowing again."
Call The Bee's Hudson Sangree, (916) 321-1191.