New state law delays foreclosure filings; but does it reduce them?

Prepare for headlines along this line: "Huge drop in L.A. foreclosure filings in September." Behind those upcoming headlines: a new state law requiring lenders to make better efforts to talk with homeowners before initiating the foreclosure process.

Foreclosure Radar's Sean O'Toole says the drop-off in some pre-foreclosure filings, such as notices of default, has been dramatic -- declines of up to  80% in some counties -- and is potentially misleading. He says the implementation of a new state law, Senate Bill 1137, is delaying foreclosure filings but ultimately will not stop them. From O'Toole's blog, "Foreclosure Truth":

One of the new requirements placed on lenders, loan servicers, and/or their agents is to prove that they have attempted to communicate directly with delinquent borrowers about their financial situation, and have considered potential arrangements to avoid foreclosure.  The proof of this activity must be filed with the recorded documents – typically an affidavit attached to the Notice of Default or Notice of Trustee’s Sale.

O'Toole told L.A. Land he has already seen huge declines in filings in Los Angeles County. "Typically we see several hundred notices of default every day in L.A. County," he told L.A. Land. "But on September 8, we saw only 90. On September 9, there were 60. It's a paperwork issue."

More, from O'Toole's blog:

Be careful with drawing any conclusions from the declines. Even national reports may be impacted as CA represents one third of nationwide foreclosure activity. The reality is that this only delays the process, and unless lenders radically change their position on loan modifications with principal balance reductions, it will likely have little impact other than a delay of the inevitable.

Playing devil's advocate, I asked O'Toole if it was possible that the new law could be encouraging lenders to modify mortgages rather than foreclose. He says he's seen no evidence of that. For example, the number of scheduled Trustee Sales is rising, and it would probably be falling if lenders were putting the brakes on foreclosures. Additionally, he said there is a major problem preventing loan modifications for California borrowers: so many borrowers have more than one mortgage, which makes modifications complicated and difficult.

-- Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles
Photo Credit: A.P.

Comments

[Laker]

I think this is cool for the loan owner sitting in "his" house while not paying the mortgage for couple of months at that point.
So, this law will give that dude another month or two of free rent....
Beautiful. That will put the loss to the bank that now will need to wait another month or two until it can foreclose and list the house for sale.
Add insult to injury, after foreclosing, the previous loan owner now called squatter, can file various motions with the state and keep dragging the process of eviction....

I personally know two properties, one that i actually thinking of buying (for the right price), that the loan owners are now about 12 months of rent free and still don't show any sign of moving out....

[D]

Laker, if you buy the house then you'll be a "loan owner" too.
Even if you buy at 1999 prices it could still go down in value and you be in the same boat as the people you spend way to much time blogging about. You seem to want it both ways, make fun of the home owners until you become one, then what?

Make up your you mind,

What's wrong with you?

[Joe]

Like O'Toole said, this will only delay the process. You deserve to be foreclosed if you bought something you couldn't previously afford. Its kind of like you financing a Bently at the same price as a ford. You don't deserve it unless you have the money! I don't think loans should be modified. Why should someone who bought something they could never afford be able to stay with that current home. Its sickening and its one of the reasons why we're in this huge mess in the first place.

[shockg]

D, Laker will become an instant equity owner. How dare you suggest otherwise. And in other news, Sean "tool" O'toole's rambling is nothing more than damage control.

[geomath]

Bottom line: If you only make $35k/year, you cannot afford a $300,000+ house. There is no way to "work with the borrower" to "modify" such a loan. The only situations under which the borrower could ever afford it would be if (1) They won the lottery, (2) They received an enormous inheritance or (3) They suddenly got a job paying three to four times as much.

How likely are any of these scenarios in most cases?

[Laker]

D,
As i said the RIGHT PRICE. If i can get it for that price, it would mean LESS than what i pay RENT today.
Also the 20% down is waiting and still earning 4%.
I will not be loan owner as i actually will put some dollars down.
A bear like me cannot believe that we are going to see 1999 nominal prices again. If I'm wrong, that means that RENTS will need to be slashed by 30-50% from today's rents...That is some serious deflation.
With the way the FED is handling money to every bank, I-bank or insurance company, the printing presses are running full steam a head...hard to believe. Where is this money coming from ?

Good morning shock, so your nice areas of LA are still climbing 20% on annual basis??

geomath ,
If Joe 6-pack only makes $35,000 a year, the government will modify his loan down to $120,000. Then he could afford it, even with 35K a year. The remaining $180,000 will be financed by you and me the tax payers....

Do you guys realize that today's $85 billion loan to AIG is like every tax payer has just given AIG $600-1000.
What happened to that stimulus check....i guess it bounced back with insufficient funds fee....(from WAMU)

[D]

Laker,

A: No matter how much you put down unless you pay 100% cash you will need a LOAN and then will be a LOAN OWNER and you have NO idea how far prices will fall.

[D]

Laker,

A: No matter how much you put down unless you pay 100% cash you will need a LOAN and then will be a LOAN OWNER and you have NO idea how far prices will fall.

[MyLessThanPrimeBeef]

If the Dodgers are down 50-1 by the 3rd inning, I hope the guy in charge knows well enough to pulling his regular players so he can fight another day.

Paulson, Bernanke, the Calif legislature...they should start thinking about conceding the battle so the war can still be won.

Stop wasting more money. Stop dragging out the inevitable process.

Let go of the dead parts and preserve the health ones, which are this generation of American taxpayers as well as future generations.

[The original RZ]

Great, something else to delay the housing price correction...

[Drew]

"Do you guys realize that today's $85 billion loan to AIG is like every tax payer has just given AIG $600-1000."

Actually, we loaned them the money at a very high rate. We didn't just give it away. We have given them an incentive to repay the loan quickly.

[annonyed]

Laker is right.

Nobody knows Laker's income. If he buys a house today, gets a fixed rate and knows that he can afford to make the monthly payments plus taxes, then he will not be in the same boat as these "loan owners".

By the way if Laker can qualify for a loan with today's standards then he most likely will not be one of these loan owners. Let's remember that no docs and no incomes loans are gone.

He can always buy for cash. There is a lot of that as well. Remember some people cashed out during the "bubble" and did well.

[tony logan]

This is a complete joke.

Banks want to delay foreclosure.

If it was profitable to foreclose, they would hire more people and get to it immediately. There is no paperwork delay.

Banks want to wait until after October 1st when the taxpayer bailout program allows them to shift loans to Fannie and Freddie.

Plain and simple, this is a fraud, much like each of the preceding frauds, designed to maximize bank profits at the expense of the taxpayer.

Barney Frank waived his finger at the banks telling them they were going to be in "big trouble" if they did not voluntarily write down loans using the new provision of the housing bill...

But this was a false argument, seeing as the banks were the ones that financed and wrote the bill.

So six months later we'll see that "thank goodness the banks have voluntarily used this bill to help the homeowners".

Meanwhile, they will only write down to 85%, those houses that are worth much less than 85% of what they are currently claiming on their books.

Rant off.

[jackie]

Monday, September 22, 2008

Foreclosure Crisis - Mortgage Lenders Are Scum

In spite of Congress passing H.R. 3221 Foreclosure Prevention Act of 2008, mortage lenders like Washington Mutual have refused to help borrowers near or in foreclosure.

It does not matter whether you are sub-prime or prime. Washington Mutual wants your home.

I ask why?

Why do lenders want your home even though it may be worth nothing?

Why do lenders want your home even if you can afford future payments and just need some time?

What is in it for the lender?

I believe we have to find out.