Kelly Zito
San Francisco Chronicle

Surging home prices and low interest rates triggered a dramatic drop in the share of California homeowners late on their mortgage payments in the first quarter, according to a new survey.

For the three months that ended in March, 2.13 percent of state homeowners were at least 30 days late on their home loan payments, on a non- seasonally adjusted basis, down sharply from the 2.66 percent for the same period a year ago, researchers at the Mortgage Bankers Association found.

The portion of loans entering the foreclosure process also fell to 0.17 percent from 0.18 percent in the first quarter of 2003. The total share of loans in foreclosure was 0.33 percent, down from 0.46 percent.

The national data generally followed the California trend. Countrywide, the delinquency rate fell from 4.85 percent a year ago to 4.33 percent, the lowest delinquency rate since the second quarter of 2000.

The inventory of homes in foreclosure declined to 1.27 percent versus 1. 33 percent in the first quarter of 2003. The share of mortgages that entered foreclosure, however, edged up to 0.46 percent from 0.41 percent last year.

Monday's study did not include Bay Area figures, but another recent study showed foreclosures in the nine-county region dropped 10.4 percent in the first quarter.

The decline in late payments highlights the strength of both the national and the state housing markets.

Despite the high-tech implosion and high unemployment in job centers like Silicon Valley, home prices have climbed steadily across the region and the state. As a result, many homeowners in financial straits have been able to sell their homes at a profit, thereby escaping foreclosure.

The median price for a single-family home in the Bay Area jumped about 15 percent from $433,000 in March 2003 to $499,000 a year later, said real estate information firm DataQuick.

Nationally, an improving job picture is helping to squeeze default rates. Mortgage Banker Association chief economist Doug Duncan noted that employers added nearly 600,000 jobs in the first three months of the year. California employers added 45,300 jobs during that time.What's more, rock-bottom mortgage rates have allowed more homeowners to refinance and lower their monthly payments. In mid-March, the average U.S. rate for a 30-year fixed mortgage was 5.38 percent, the lowest level since June 2003, when rates dipped to their lowest levels in five decades. Last week, the benchmark rate reached 6.3 percent.

Still, Duncan noted that rising interest rates are pushing more home buyers to take out riskier adjustable rate mortgages, which could lead to an increase in the number of defaults. With adjustable loans, the interest rate is fixed for a certain period of time, then floats up or down depending on the market rate. As a result, borrowers usually have lower monthly payments in the first years of the loan, but as rates rise, their payments can increase.

Such loans have become increasingly popular in high-priced locales such as the Bay Area, where fewer buyers can afford to pay the higher monthly costs associated with less risky fixed-term loans.

"The share of ARMs in current applications means some households are taking on more payment risk," Duncan said in a conference call with reporters.

Nevertheless, Duncan added, higher employment and improving incomes could offset the riskier loans, keeping a lid on default rates in coming quarters across the nation and the state.

The bankers' survey covers about 37.5 million loans, or about 80 percent of the total U.S. mortgage market.

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