From HW:

Notices of default, the first step in the California foreclosure process, dropped 17.5% in the fourth from the year before, but the decline may not have come from borrowers improving their financial situation, real estate data provider DataQuick said.

Lenders recorded 69,799 NODs at California county offices in the fourth quarter, down from more than 84,000 in the fourth quarter of 2009 and the lowest level since the second quarter of 2007.

“We don’t know how much of the decline is due to less household financial distress, and how much is due to shifts in lender and servicer foreclosure policies,” DataQuick President John Walsh said. “The level of default activity would certainly be higher if it weren’t for alternative strategies such as short sales, or even lengthening grace periods.”

More than half of the homes in California that received an NOD in the last 18 months have been foreclosed on or sold through a short sale. The status of the other half isn’t clear, DataQuick said, but they should be in the modification or short sale process.

“The institutions that hold these loans in their portfolios will do whatever it takes to lessen their losses, including waiting,” Walsh said. “An additional factor is all the turbulence when it comes to the formalities of the foreclosure process.”

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