Mortgage defaults in California are at a three-year high, according to a report released on Wednesday.

Defaults were up more than 67% in the second quarter of 2006 when compared to the second quarter of 2005. There were over 20,000 default notices mailed to homeowners between April and June, a 10.5% increase over the first three months of the year, according to a DataQuick Information Systems report.

Santa Clara County led the state with 530 notices of default in the quarter. There was a 14.5% increase from the same quarter one year earlier.

San Mateo County had 222 notices, an increase of 51% for the year, while Montery County saw a 62% increase, with 128 notices. Santa Cruz County had 73 -- the same amount as last year.

In total, 23 counties posted an increase of over 50% in the number of default notices for the second quarter. Riverside, Sacramento, Placer, Stanislaus and Sutter counties saw their notices more than double.

Defaults remain below historically normal levels. On average, lenders have filed 32,762 notices of default in the state for each quarter over the past 14 years. The first quarter total of 20,752 was the highest since the first quarter of 2003.

"This is an important trend to watch, but it doesn't strike us as ominous," said Marshall Prentice, DataQuick's president. "The increase was a statistical certainty because the number of defaults had fallen to such extreme lows. We would have to see defaults roughly double from today's level before they would begin to impact home values."

There are a variety of factors that contribute to higher default levels, including the amount of equity in homes, the types of mortgages in place and how long the mortgage has been held.

"We hear a lot of talk about rising payments on adjustable-rate loans triggering borrower distress. While there's no doubt some of that is going on, as far as we can tell the spike in defaults is mainly the result of slowing price appreciation. It makes it harder for people behind on their mortgage to sell their homes and pay off the lender."

DataQuick is a subsidiary of MacDonald Dettwiler and Associates. The firm monitors real estate activity nationwide.

Martin Lukac

Martin Lukac, represents RateEmpire.com and #1 American Financial, a finance web-company specializing in real estate/mortgage rates. Find low home loan mortgage interest rates from hundreds of mortgage companies!