Foreclosures Decrease Drastically in California

The California housing market was hit particularly hard by the recession.  The dot-com boom and speculation on real estate drove up home values during the bubble years, and that value was just as quickly erased when the market collapsed.  Millions were left owing more on their mortgage than their house was worth.  Sky-high unemployment caused many more people to fall behind on their mortgages.  Improvement in the California housing market is hugely important to the economic recovery efforts.  Declining property values prevented many homeowners from taking advantage of low current mortgage rates, which caused many others to fall behind on their mortgages.

According to an article in today’s Los Angeles Times, there are some reasons to be optimistic.  Chief among these is that California foreclosure rates plummeted in the first quarter of 2010.

According to research from the San Diego firm MDA DataQuick, mortgage defaults fell 40.2 percent from the first quarter of 2009 to the first quarter of 2010.  Sales of foreclosed properties dropped almost 2 percent from the previous year, and 16 percent from the last quarter of 2009.

This is important because it means it is unlikely that the housing market will not be flooded with distressed properties in the near future.  Shadow inventory of distressed properties represents one of the biggest threats to the housing recovery.  A large supply of distressed properties would drag down property values across the board.  Distressed properties also negatively affects the value of neighboring properties.  Until the excess housing supply is absorbed, any rebound in property values will be unlikely.

There are many possible reasons for the declining number of  foreclosures in California.  One possibility is that the increased efforts of the government and lenders to modify loans to prevent foreclosures. Programs such as the Home Affordable Modification Program (HAMP) and the Home Affordable Foreclosure Alternatives Program (HAFA) have been increasingly emphasized.  Critics of these programs contend that they are ineffective or simply delay foreclosure.  Far fewer mortgages have been permanently modified than were intended by the programs.

It is also possible that banks are holding back foreclosed properties so the market is not flooded with foreclosed properties.  Doing this would not be in the banks interest because the increase in supply would drive down home prices.  Banks are trying to recoup as much money as possible from foreclosed homes, and it may make more sense for them to slowly release homes on the market.  Nobody is really sure how many distressed properties are owned by banks.

While the California housing market is not out of the woods, there are reasons to be encouraged by recent developments.  Total Mortgage Services has been lending in California for over a decade.  If you are looking for a mortgage in California, call us today at 877-868-2509.