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  1. California Legislation Would End Dual-Track Foreclosures

    By on April 27, 2011

    We’ve discussed the problem of “dual-track” foreclosure-modification a number of times in this space over the past year or so.

    Dual-tracking occurs when a delinquent or distressed homeowner applies for a loan modification, and their lender simultaneously begins the modification and foreclosure processes.  Often times, the borrower is under the impression that they are in line for a mortgage modification only to be hit with an auction notice before their modification is processed.  Lenders defend the practice by saying that already long foreclosure times would be extended even further if dual-tracking were discontinued.  Lenders further claim that discontinuation of dual-tracking could open them up to further losses.  Critics of the practice say that it is disingenuous and that it strings along borrowers who are already in a bad spot.

    Alejandro Lazo of the Los Angeles Times has done a particularly good job covering the issue as it relates to the California housing market, and has a new article up this morning about attempts to end the practice in California.  There is a proposed law in the California legislature that would require lenders to issue a yes or no decision on mortgage modifications prior to beginning the foreclosure process.  This would end dual-tracking in California.  From the article:

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    Category: Mortgage Rates

  2. California Foreclosure Notices Down, Repossessions Up in First Quarter

    By on April 20, 2011

    Notices of default were down significantly in California in the first quarter of 2011, according to an article in today’s Los Angeles Times by Alejandro Lazo.

    68,239 notices of default were issued to California homeowners in the first quarter, which is a 2.2 percent quarter-over-quarter decline, and a 15.8 percent year-over-year decline.  On average, those receiving notices of default were about six months delinquent on their mortgages.

    The article indicates that this may mean the worst of the foreclosure crisis is behind us (at least in California):

    “The drop was an indication that the worst of the foreclosure mess is probably over and a much-feared second wave of bank-owned properties is unlikely, analysts said. Instead, foreclosures will probably remain a considerable part of the California market for years as the mortgage industry and government officials continue to sort through the aftermath of the bust.”

    Unfortunately, I am not so sure that this is the case.  At 12 percent unemployment, California has the second highest jobless rate in the country, behind only Nevada.  The state is also second in the nation in shadow inventory, with over 200,000 unsold homes that have yet to hit the market.  The economic situation has not improved appreciably in California, and excess supply and lack of demand will likely cause additional declines in home values.  More than thirty percent of homeowners in California are underwater, and additional declines in home values will likely send more of these homeowners into foreclosure.

    The pace of foreclosures is down across the country as a result of banks slowing their foreclosure processes due to the robo-signing scandal and increased judicial scrutiny on foreclosures.  This has caused many banks to review their foreclosure processes and has stretched the time it takes to foreclose on a home.  I strongly suspect that we will look back on this decline as a temporary lull in the foreclosure crisis.

    Although notices of default were down, homes seized due to delinquency actually increased substantially in the first quarter, rising 21.5% from the fourth quarter of 2010.

    Category: Mortgage Rates

  3. California Foreclosures Rise Significantly in March

    By on April 13, 2011

    New data from ForeclosureRadar Inc. showed large increases in foreclosures in California last month, according to an article from the Central Valley Business Times.  California foreclosure sales were up 35.1 percent in March. Notice of Default filings totaled 26,615 in March, an increase of 17.3 percent from February.  This is the highest level for NODs since last October.  The amount of time it takes to foreclose rose to 302 days on average, a 4.1 percent increase month-over-month. Sean O’Toole, CERO of ForeclosureRadar commented:

    “Between government intervention, internal issues within the banks, and even simple deviations like the number of days in the month, it is easy to come to the wrong conclusions about foreclosure activity.  The one thing that remains clear is that while the process has slowed, there remains no consensus on a viable solution other than to eliminate the excess mortgage debt that has left millions underwater and continues to hinder the broader economy.”

    Unfortunately, the California housing market isn’t showing signs of turning around anytime soon.  Unemployment is at 12.3 percent, significantly above the national unemployment rate of 8.8%.  The lack of jobs virtually ensures that demand for housing will remain pent up (if indeed it exists at all).  In addition to the large number of homes presently on the market, there are 228,000 homes in shadow inventory that have yet to hit the market.  This number will only grow as banks continue to ramp up their foreclosure mechanisms, many of which were suspended after the robo-signing disaster.  Home prices will continue to fall until such a time when demand and supply are in equilibrium, and it could take quite some time until the market hits a bottom.

    If you’re in California, I’m curious to know your take on the market.  Let me know in the comments section below.

    Category: Mortgage Rates

  4. Foreclosures May Cost California Communities $4b in Lost Tax Revenue

    By on March 17, 2011

    There is an interesting report from the California Home Defenders League this morning that details the damage foreclosure is doing to California communities.  The report does appear to have a fair amount of bias (note the title: “Home Wreckers: How Wall Street Foreclosures Are Devastating Communities”), so the numbers in it should likely be taken with a grain of salt.  Nevertheless, I still think the report does have some merit and includes some illuminating information.

    The housing market in California is in pretty dire straits.  Approximately one third of California homeowners with mortgages have negative home equity (owe more on their mortgage than their home is worth).  One in five foreclosures in the United States is located in California.

    The first revelation in the report is that foreclosures will cause a decline in home values of $631 billion in California through 2012 ($207 billion in losses for foreclosed homes, and $424 billion in losses for homes near foreclosures).  The estimate is based upon the projection of 2 million foreclosures in California through 2012 (thusfar there have been 1.2 million foreclosures).  The $632 billion estimate is based upon numbers from RealtyTrac that say the average foreclosed house loses 22% of its value, and that houses within 1/8 mile of a foreclosure lose approximately 1% of their value.

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    Category: Mortgage Rates

  5. California Association of Realtors Encourages Cooperation on Short Sales

    By on March 10, 2011

    Two days ago, I wrote about California short sales after a report emerged that said that 43% of short sales under contract in that state end up falling through.  A short sale is when an underwater homeowner sells their house for less than is owed on the mortgage.  When the sale is completed, the lender forgives the difference between the loan amount and the sale amount (taxes may be due on the forgiven debt).  In order to do this, the seller needs to get permission from lenders and servicers, and the process is often long and frustrating.  It is the length of the process as well as the difficulty in procuring lender cooperation that causes many of these sales to fall through.

    This morning, the Beth Peerce, the President of the California Association of Realtors published an open letter underlining the importance of short sales in the California market, and asking for increased cooperation in conducting short sales:

    “Unfortunately, many homeowners are unable to successfully negotiate a short sale.  According to a recent survey of 2,150 California REALTORS® who have assisted clients with a short sale, only three out of five transactions closed – even when there was an interested and qualified buyer.

    What’s the problem?  For one, no two mortgage agreements are the same, so it can be difficult to standardize short sale processes and procedures.  Many homeowners have second mortgages, which further complicate matters.  Then there’s the challenge of convincing multiple parties to take a financial loss or, in the case of loan servicers, to forego fees they otherwise might earn during the course of the foreclosure process.  Poor and slow service by many banks and servicers has only exacerbated the problem.  Horror stories abound from potential homebuyers and REALTORS® forced to wait 90 or more days for a response to a purchase offer or being required to fax short sale applications or other paperwork as many as 50 times.   These delays discourage potential homebuyers from considering a short sale purchase and undermine the process for those who short sales are intended to benefit – the hundreds of thousands of families facing foreclosure.”
    As the letter says, 640,000 Californians have lost their homes to foreclosure in the past three years, and more than a third of Californians are underwater on their mortgages, so the foreclosure problem in California will not subside anytime soon.  Encouraging short sales makes a lot of sense and would help liquidate some of the excess inventory in the state.
    Category: Mortgage Rates

  6. Short Sales Failing in California

    By on March 8, 2011

    Jonathan Lansner writes a really good column/blog in the Orange County Register (Lanser on Real Estate) that never fails to provide insight into the California real estate market.  He has a post this morning about the state of short sales in California that I thought was pretty interesting.

    According to the article:

    “California real estate agents say that lenders are unresponsive to efforts to sell under-water homes, killing four out of every 10 “short sale” transactions that go under contract, a state survey shows.”

    A short sale is when a homeowner with negative home equity is allowed to sell their house for less than what they owe on the mortgage.  The remainder of the debt is then forgiven by the lender.  So for instance, a homeowner may owe $400,000 on a home that is now only worth $300,000.  With the permission of the lender, the homeowner may be able to arrange a sale for $300,000, and the lender forgives the remaining $100,000 that is owed on the mortgage (n.b. sometimes taxes may be owed on the forgiven debt).  This can be beneficial to the lender because they often stand to take a larger loss in a foreclosure than a short sale. It is beneficial to the homeowner because it allows them to get out from under the mortgage.  Short sales generally hurt the credit of the borrower less than if the house was foreclosed.  These types of sales are particularly prevalent in markets such as California, Nevada, Arizona, Michigan, and Florida, all of which were hit particularly hard by the housing bubble.

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    Category: Mortgage Rates

  7. Help on the Way for Underwater California Homeowners

    By on February 25, 2011

    “Keep Your Home California” is a new program designed to help struggling California homeowners avoid foreclosure.  It aims to do this by distributing $2 billion worth of federal funds from the “Hardest Hit Fund” in order to reduce delinquencies and avoid foreclosures in order to stabilize the California housing market.

    The program is divided into an unemployment mortgage assistance program, a mortgage reinstatement assistance program, a principal reduction program, and a transition assistance program.  The benefits are capped at $50,000 per qualifying household, mortgage servicers may choose to match the funds, so households could theoretically get up to $100,000 in assistance.

    The following are some of the eligibility requirements of the program:

    • Utilize their home as their primary residence.
    • The principal balance of the mortgage cannot go over $729,750
    • Homeowners must meet low and moderate income limits
    • Homeowners have to complete a hardship affidavit
    • The loan in question must be delinquent or in danger of imminent default
    • For full eligibility requirements, see this link.

    Those who are suffering from a reduction in income or increased expenses may be eligible.  This program seems like a good idea to me, however, I think it may be too little, too late.  If every household were to receive $50,000, you would be able to aid 40,000 households.  Even if you figure each household gets less aid, you are still probably helping somewhere less than 100,000 households.  To put this in perspective, about 150,000 notices of foreclosure were issued in California in the second half of 2010.  These numbers are only expected to increase in 2011.

    Hundreds of billions of dollars worth of bailouts were issued to corporations during the crisis (if not more).  $7.6 was made available to help homeowners who desperately need it.  There is a disparity here that should be corrected.

    Category: Mortgage Rates

  8. Southern California Housing Market Battered by Foreclosures, Declining Home Values

    By on February 16, 2011

    Things are not looking so golden in the Golden State right now.  The housing market in Southern California continues to be battered by declining home prices, foreclosure, too much housing supply, and lack of demand for said houses.

    Data released by MDA DataQuick yesterday showed that home sales in January fell 5.9% from the year prior, hitting their lowest level in three years.  Home sales declined 26% from the month earlier.  Home prices also declined 0.6% in January from a year before, posting the first year-over-year decline since October 2009.

    Although December and January are typically weak months for home sales before the spring buying season picks up, there are few indicators that conditions will improve significantly in the coming months.

    MDA DataQuick President John Walsh commented:

    “Lots of potential buyers continue to hold back, waiting for a sign prices have bottomed, that their jobs are safe, or that loans are easier to get.  Sales were lousy, but many investors and others looking for bargains stayed active.”

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    Category: Mortgage Rates

  9. Foreclosures Increase in California For Fourth Straight Month

    1 By on September 14, 2010

    According to information from ForeclosureRadar via a Housingwire.com article by Jason Philyaw, notice of foreclosure filing in the state of California increased in August by 16.6 percent over July.  This is the fourth month in a row that foreclosure notices rose.

    Foreclosures are down in California 16.3 percent from the previous year, but foreclosure cancellations also declined, demonstrating that foreclosure modification programs are continuing to fail, at least in the California market.

    While home prices in California are up over the last year according to Case Shiller, most of the increase is likely attributable to government stimulus in the form of the federal government’s first time homebuyer tax credit as well as state tax credit programs for taxpayers.  Nationwide, demand for housing collapsed after the expiration of the stimulus.  The same thing appears to be occurring in California ex-stimulus.

    In the national market as well as the California market, there is an abundance of houses, and not enough demand to absorb them.  Government stimulus pulled demand for homes into the spring at the expense of the summer and fall.  Economic conditions, highlighted by the weak labor market are not conducive to household formation.  Basic economics tells us that home prices will decline.  It seems very likely that they are declining right now, but we haven’t seen the effects show up in the reports yet.  The Case Shiller Home Price Index is a three month average that lags by two months.  Expect to start seeing declining prices reflected in October and November’s reports.

    Further declines in property values will wipe out even more homeowner equity, which could leave a larger number of borrowers in negative equity positions on their homes.  Borrowers who are underwater on their homes are far more likely to default on their mortgages.  California saw a dramatic increase in home prices during the bubble years and many homes have lost a third to half of their value, if not more.

    What we are seeing now may be the beginning of another wave of foreclosures and price declines in the California market.  Are you a California homeowner?  Have you attempted to sell or buy a home in California?  What is your viewpoint on the California housing market?  Let me know in the comments section below.

    Category: Mortgage Rates

  10. California Foreclosure Prevention Initiative Defeated

    By on September 1, 2010

    California ranks fourth in the nation in foreclosure rate, and has had more than 340,000 foreclosures so far this year.  In response to this crisis, a bill (SB 1275) designed to prevent further foreclosures was introduced in the California General Assembly earlier in the summer.  Yesterday, the bill was defeated in the California Assembly by a vote of 29-36.

    The bill would have required lenders to take four action steps before they could serve a borrower with a Notice of Default.  In brief, the steps would have been:

    • Mail a notice to the borrower that would advise them of their rights during the foreclosure process.
    • Mail the borrower applications for loan modification or foreclosure alternative programs.
    • Evaluate all requests for loan modification.
    • Mail those who are denied modification a detailed explanation for the denial

    The bill would also allow borrowers some form of legal recourse if they felt they had been unfairly foreclosed upon.  Borrowers would be able to seek injunctions against foreclosure and sue for damages if they were unjustly foreclosed upon.

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    Category: Mortgage Rates

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