San Diego foreclosures have been a huge source of activity for the San Diego real estate market.  Recent reports show an average of 30 to 40 percent homes sold in the region as foreclosure properties.  But the number of foreclosures in San Diego County has actually declined in 2010 by about 5%.  And the number of foreclosure homes for sale in San Diego dropped by 20.88% in the nine months ending September 2010, compared to the same period in 2009.  So what’s going on?

First, banks have received considerable pressure to rework mortgages for distressed home owners rather than proceed directly to foreclosure.  This has been true since the beginning of the Obama Administration.  It took nearly two years, but banks have definitely made an effort to modify mortgages, and their systems have become more streamlined in the past year.  San Diego foreclosures are definitely less frequent than they otherwise would have been.

Second, the number of San Diego foreclosure homes for sale has lagged behind the actual number of foreclosures.  This disparity reflects the “shadow inventory” of foreclosures in San Diego and throughout the United States.  Many banks decided that it makes more sense for them to hold onto a portion of their foreclosed properties rather than immediately bring them to market.  Analysts predict that prices will rise in the intermediate term (the median price of San Diego homes has already increased by about 5% in the past 12 months).  So the banks in many cases decided that it is better to hold on to the properties in hopes of selling at a higher price in the future.

Third, there are rumors that there will be an increase of foreclosures properties for sale in San Diego County starting around November 15, 2010.  This is just a rumor, but possibly more credible than rumors in the recent past.  Several banks have been calling the REO listing agents around town and telling them to staff up for the coming release of foreclosure listings.

But on the other side of the coin, the news in the past week is that there is again pressure from Washington D.C. to implement another moratorium on foreclosures.  This is in response to allegations that some banks have been “rubber stamping” foreclosure documents, resulting in some foreclosure actions against mortgage holders who are current on their loan payments.  Bank of America is the only large bank in California to voluntarily implement a moratorium until their administrative processing issues have been resolved.  It remains to be seen whether other banks will voluntarily follow suit, or whether another moratorium will be mandated from the Federal Government.