March 10th, 2009 8:43 PM by Lehel Szucs
A California law that requires mortgage lenders to give customers 30 days notice before filing a default, appears to have only postponed the problems of financially troubled homeowners rather than resolved them.
Between November and December, California saw a 122 percent surge in default notices that begin the foreclosure process, following a three-month decline, RealtyTrac reported Wednesday.
It was hoped that the law, which took effect in September, would provide time for the lender and homeowner to find an alternative to foreclosure.
Riverside County saw notices of default plunge by more than half in September, stay low for three months and then jump 126 percent to 4,729 in December. San Bernardino County saw the number of default notices increase 92 percent between November and December to 4,247, after falling as low as 1,500 in September.
"Clearly, the foreclosure prevention programs implemented to date have not had any real success in slowing down this foreclosure tsunami. And the recent California law, much like its predecessors in Massachusetts and Maryland, appears to have done little more than delay the inevitable foreclosure proceedings for thousands of homeowners," said RealtyTrac Chief Executive James J. Saccacio in a prepared statement.
Life in the Balance
The only way foreclosure modifications will work, several economists said, is if lenders agree to lower mortgage balances. They said that is the only way to help those who used creative financing to buy houses they actually could not afford over the life of the mortgage.
Lisa Jarman, a counselor with the Fair Housing Council of Riverside County, said there are modification programs that can lower mortgage balances and interest rates and extend a loan to 40 years, which combined can lower monthly mortgage payments. But she said most of her clients have too much debt or too little income to qualify.
An Inland Empire economist, John Husing, said he favors proposed federal legislation to allow U.S. bankruptcy judges to lower the balances on mortgages of homeowners who seek to reorganize their debts in bankruptcy.
Because the region is so dependent on housing, the flood of foreclosures must stop before the Inland economy can start to recover, Husing said. "If you don't get a solution to this problem the recession will continue for multiple years," he said.
RealtyTrac's year-end report for 2008 illustrates homeowners' difficulty coping with falling home values and adjustable-rate mortgages that have reset to monthly payments they can no longer afford. Unable to refinance or sell their homes, homeowners are increasingly losing them.
Foreclosure activity more than doubled in Riverside and San Bernardino counties in 2008 compared to a year earlier. Several economists and analysts predict the pain will continue through 2009 because of a worsening economy.
"Rising unemployment is going to be the major catalyst for continued foreclosures in 2009," said Greg McBride, senior financial analyst with Bankrate.com.