Several readers have suggested that the CA Homeowners Bill of Rights has been the cause of the slowing foreclsoure activity – and now Barclays agrees. Fromdsnews.com:
The California Homeowner Bill of Rights (HBR) is the main driving force behind the recent slowdown in foreclosure sales and short sales in the Golden State, according to a research report from Barclays. In addition to stalling the foreclosure process, provisions in the new bill, which took effect January 1, 2013, have also led to an increase in litigation risk for servicers, analyst at Barclays found.
According the report, short sale activity and foreclosure sales have been dwindling over the past few months, as indicated by foreclosure-to-REO and foreclosure-to-liquidation roll rates. At the same time, roll rates in other states appear to be steady.
As a result of the HBR, Barclays believes “servicers have become significantly more cautious when carrying out foreclosure sales” in the state. While the bill offers several protections to homeowners, one particular provision that allows borrowers to sue servicers for “material violations” of HBR could result in additional costs for servicers.
Violations of the HBR include dual-tracking, failing to provide a single point-of-contact, and neglecting to deliver proper notice of loss mitigation options.
The report explained that prior to a foreclosure sale, homeowners can seek injunctive relief to halt the foreclosure process. If a homeowner secures an injunction, the borrower can pass all legal costs to the servicer through the HBR, even if no material violation of the HBR is proven later, the report explained.
“Our understanding is that securing an injunction may require only a declaration from the borrower that a material violation of the HBR has occurred and some reasonable justification for further investigation into the alleged breach. It is possible that multiple consumer rights attorneys will offer their services on a contingent basis to borrowers facing foreclosure, effectively providing the homeowner with a zero-cost option to pursue litigation,” the report stated.
If the request for an injunction is granted, legal costs could easily rise to the thousands as the court looks into the allegations. The process could also add another 6-12 months to the foreclosure process, according to the report.
“Furthermore, borrowers are much more incentivized to demand a copy of the promissory note, the chain of mortgage assignments, and the borrower’s payment history to collect evidence that a breach of HBR occurred, further stalling the foreclosure process,” the report explained.
Even though California is not a judicial state, analysts suspect the increase in litigation risks and the extended foreclosure timelines might cause servicers to pursue more judicial foreclosures, which are exempt from the HBR’s provisions.
A bill that would extend for one year state income tax relief provided to homeowners who receive mortgage relief from their lenders was temporarily put on hold in the Legislature on Monday.
If enacted, it would align state law with federal law, which has been extended to provide another year of tax relief.
Through “short sales,” lenders agree to let borrowers sell their homes at a price lower than the amount owed on their mortgage. They then forgive the difference between the sales price and the amount owed. Historically, such loan forgiveness has been treated as income for tax purposes.
The federal Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure or short sale of a primary residence up to $2 million, qualifies for the relief.
The state law providing more limited relief than the federal act. It excluded from taxable income up to $500,000 in debt forgiveness.
AB 42 by Assemblyman Henry Perea, D-Fresno, would extend the state law for a year. The Franchise Tax Board estimates its enactment would reduce state tax revenue by $50 million this year.
The bill was presented to the Assembly Committee on Revenue and Taxation on Monday. As it routinely does with measures that would significantly affect state revenue, the panel delayed taking action until the details of next year’s budget projections become clearer.
California’s Homeowners Bill of Rights will add an estimated $30,000 of legal exposure into each and every non-judicial foreclosure, according to a white paper released by Robert L. Jackson and Associates.
Intended to educate loan servicing professionals and the financial institutions that hire them, the white paper states that the new law will change long-standing legal doctrines in the state.
The new law will also make compliance with its provisions nothing more than a very expensive defense to borrower claims of wrongful foreclosure, the white paper stated, while encouraging such claims through its private right of action.
“The industry’s focus on procedurally complying with the Homeowners Bill of Rights is misplaced,” said Scott J. Jackson, executive vice president of the firm.
The white paper concludes that the Homeowners Bill of Rights “effectively kills” the non-judicial foreclosure process it originally intended to reform. The paper states that the new law makes judicial foreclosures a cost-effective and time-efficient alternative.
“The new law strips away protective legal doctrines that an entire generation of servicing professionals have come to rely on, making it much more difficult and significantly more expensive to resolve claims brought under the new law,” Jackson said.
There are several articles out today commenting on the decline on foreclosure activity.
The ivory-tower types are quick to give credit to the CA Homeowners Bill of Rights, or to short sales being the preferred method of liquidation, instead of foreclosure.
Here are excerpts from this latimes.com article entitled, “California’s Housing Recovery May Gain Momentum, experts say”:
While dramatic, the drop is part of a general decline in foreclosure actions over the last year as banks look toward short sales and loan modifications as alternatives to seizing homes.
“You will see a continued decline in defaults from regulator activity, new laws and from the economy,” said Dustin Hobbs, a spokesman for the California Mortgage Bankers Assn. “As long as the economy, and especially the housing market, continues to slowly heal itself, you will see fewer and fewer defaults.”
Madeline Schnapp, director of economic research for ForeclosureRadar, believes the low levels of foreclosures will continue.
“The plethora of anti-foreclosure laws have been very effective in reducing foreclosure activity to what you are seeing today,” she said.
We are being led to believe that people have stopped defaulting, and anyone in trouble is taking the friendlier short-sale exit.
But short-sales and REO sales have both dropped off substantially:
NSDCC Detached-Home Closed Sales Jan 1 – Feb 7th
Year
Short-Sales
REO Sales
Non SS/REO
2011
29
18
133
2012
42
20
130
2013
23
4
180
Looking at this chart, it looks like the banks ramped up cancellations in September or everyone just started making their payments:
How can any of the “experts”, or the media look at the data and not wonder if lenders have deliberately stopped foreclosing? The banks have us right where they want us – feeling good about buying homes again, and the media is blindly pushing the new drug.
Bank of America Corp. has amassed $64 billion of mortgages that are at least six months delinquent and have yet to enter foreclosure, more than twice the amount held by its four largest competitors combined.
The loans are monitored as part of February’s $25 billion settlement between the top five U.S. lenders and state attorneys general over allegations of abusive foreclosure practices. Bank of America’s stockpile of deteriorating debt is mostly from its 2008 acquisition of Countrywide Financial Corp., once the nation’s largest mortgage provider. Wells Fargo & Co., the biggest U.S. servicer, has $15.3 billion of such unpaid loans.
The data, published last month by the monitor of the settlement, highlight Bank of America’s vast backlog of delinquencies, and the years it will take to work through them as borrowers fall further behind and losses mount for investors in mortgage-backed securities. While the Charlotte, North Carolina-based bank has begun modifications for many of its 275,000 homeowners at least 180 days behind as of Sept. 30, some will join the already clogged U.S. foreclosure pipeline.
“There’s just a long tail to work out all of these loans, which are severely delinquent at this point,” said Marty Mosby, an analyst with Guggenheim Securities LLC in Memphis, Tennessee.“It just shows the amount of work that’s still left to do.”
Delays in processing the loans add to the expenses borne by investors because maintenance, property taxes and other costs add up. While rising prices may make the mortgage-backed securities more valuable, servicers can be forced to come up with cash to cover interest payments from the delinquent loans and modifications become more difficult to accomplish as the borrower’s unpaid debt grows.
Bank of America’s portfolio of loans that are at least six months old and not in foreclosure accounts for 3.3 percent of all of the mortgages it services. Citigroup Inc. has 1.1 percent of its loans in that category and Ally Financial Inc., Wells Fargo and JPMorgan Chase & Co. each have less than 1 percent.
Bank of America has about 930,000 loans that are at least 60 days delinquent, down from 1.5 million from the peak in January 2010, Chief Executive Officer Brian Moynihan, 53, said during a Dec. 14 event at the Brookings Institution in Washington.
With the strategy of not-foreclosing working so well for the banks, you can probably say that REO and short-sale listings are winding down. How did we do?
While it is likely that REO and short-sale listings will continue for years, the media keeps touting how the distressed-property numbers are in decline. Lenders should be pursuing defaulters and liquidating their portfolios while the market is hot, but don’t be surprised if you see them do what most regular sellers are doing – waiting for prices go higher.
Here are the grand totals of NSDCC detached-home sales since 2008, when the MLS first started marking the REO and short sales separately:
Town or Area
REOs#
$/sf
Shorts#
$/sf
Non-REOSS#
$/sf
Non % of Total
Carlsbad
349
$242/sf
483
$243/sf
3,986
$283/sf
83%
Encinitas/Cdf
147
$295/sf
166
$306/sf
1,859
$401/sf
86%
RSF
65
$332/sf
54
$356/sf
771
$482/sf
87%
La Jolla
63
$484/sf
71
$487/sf
1,117
$675/sf
90%
Carmel Vly
75
$302/sf
130
$301/sf
1,851
$342/sf
90%
Del Mar/SB
43
$411/sf
40
$458/sf
943
$653/sf
92%
Totals
742
$296/sf
944
$296/sf
10,587
$405/sf
86%
We really didn’t get hit like the subprime-loan areas did, and NSDCC could withstand further foreclosure activity – in fact, homebuyers would welcome it!
Comparing the average $/sf of REO vs. short-sales helps to debunk the myth that short sales are better for the lenders than foreclosures.
R.C. and Stacy Davis lost their condominium to foreclosure in 2009, a bad break that seemed destined to keep them from buying another home for many years.
Yet on Wednesday — only three years after their foreclosure — the couple signed the papers to buy a four-bedroom house in Livermore. Their avenue to homeownership? A loan backed by FHA.
“We’re as happy as can be,” Stacy Davis said.
The ability to get an FHA loan so quickly after a foreclosure could be welcome news to thousands of people who lost their homes during the housing bust. In the coming 12 months, about 22,000 Bay Area foreclosures will hit the three-year mark.
While mortgage giants Fannie Mae and Freddie Mac make people wait seven years after a foreclosure, the FHA will approve loans after three years, providing the buyer has established good credit and the ability to pay the mortgage.
“There’s definitely a movement of folks who have had a foreclosure to re-emerge and re-engage in the market,” said Dustin Hobbs of the California Mortgage Bankers Association. He said brokers around the state have picked up on the trend.
“It helps the housing market,” said Guy Schwartz of CMG Financial in San Ramon, which handled the Davis’ mortgage.
The FHA, which is self-supporting, provides mortgage insurance for loans with low down payments and more flexible household income requirements. The Davis loan came with a 3.5 percent down payment plus required monthly mortgage insurance and a 3.75 percent interest rate on a 30-year loan.
“An FHA loan is a good option for those who can qualify,” said Paul Leonard, California director of the Center for Responsible Lending. And there couldn’t be a better time to try, he said.
The Davis’ journey from foreclosure to new home began in 2005 when they bought a condo in Concord for $262,000 at the peak of the market.
The couple’s interest-only, 100 percent-financed loan was a classic bubble product that became a formula for foreclosure during the housing crash.
To make things worse, the condo was in a rough neighborhood, said Stacy Davis, who is a special-education teacher at Mission San Jose High School in Fremont. Her husband is a senior producer for the Golden State Warriors.
They tried to sell the condo after their daughter was born, but no one wanted to buy it, Stacy Davis said. “We decided we’re going to try to stick this out. We owned it and we would make it work.”
So they remodeled, put in a new kitchen and molding.
Meanwhile, the neighborhood deteriorated. Shopping carts piled up on the sidewalk, she said. Graffiti blossomed on walls.
After their son was born, they tried a short sale and found a buyer. “Within a week, an upstairs bathroom pipe busted open and flooded the whole place — the new kitchen, the molding, all destroyed. So the buyer backed out,” she said.
Their condo in ruins, they moved to a rented house in Dublin and the bank foreclosed. Their credit rating dropped to about 500, but they were able to build it back to about 700. “Within a year we were getting credit card applications. We didn’t feel like it affected our lives at all,” she said.
The purchase of the house in Livermore completed, the Davis family will begin moving in early next month.
WOODSTOCK, Ga. — A family in Woodstock, who just lost their home of 20 years to foreclosure and are preparing to move out, lost even more on Wednesday. And it was because of what they triggered when they posted a craigslist ad Tuesday night.
Their online post was just a well-meaning ad for a giveaway in their driveway outside the small house, a giveaway scheduled to begin at 10 a.m. Wednesday. But big crowds showed up and ended up taking practically everything inside the house, too.
Wednesday night, Michael Vercher walked 11Alive’s Jon Shirek through his family’s almost empty soon-to-be former home.
“Well, when we got to the house, I mean, pretty much — this,” he said as he stepped from the foyer into the living room. Their home — ransacked, ravaged, raked over. Almost everything inside — gone.
“They came in and just tore the place up,” he said.
People responding to the family’s craigslist ad showed up at the house earlier than 10 a.m., before Vercher arrived there from work to supervise the giveaway. And when he drove up to the house, he said, they had already broken into it, helping themselves to almost everything inside.
And he could not stop them.
“Everyone was inside the house; they were taking out items,” he said. “There were cars around the block. It was like ants in and out of the house.”
We have been told that banks and servicers are now using short-sales, instead of foreclosures, as their primary defaulter-disposal method.
It appears that the conversion is well underway in San Diego County – here are the number of residential distressed-sales and average pricing for the six months between April 1st and Sept. 30th:
San Diego Co.
2011
2012
% Chg.
REO Sales, #
3,778
2,381
-37%
REO Avg. $/sf
$178/sf
$184/sf
+3%
Short Sales, #
3,465
4,404
+27%
SS Avg. $/sf
$195/sf
$189/sf
-3%
Yes, the conversion from foreclosures to short sales is happening, though it doesn’t look good for the pricing trend. You could call +/- 3% just statistical noise, but for those who believe that the lenders save big money by short-selling vs foreclosure should think again.
The fraud seems to be getting more outrageous too – did you see the one yesterday that if the realtor would have listed it at market value, the seller would have made money? Instead, he listed it at $100,000 below the loan amount, and called it a short sale – at least for the usual five seconds before he withdrew the listing!
(withdrawing a SS listing is common when the listing agent has his own buyer and doesn’t want competition – he shows the bank a copy of the listing taken during the five seconds that it was active)
If the request for an injunction is granted, legal costs could easily rise to the thousands as the court looks into the allegations. The process could also add another 6-12 months to the foreclosure process, according to the report.
The new law will also make compliance with its provisions nothing more than a very expensive defense to borrower claims of wrongful foreclosure, the 
While dramatic, the drop is part of a general decline in foreclosure actions over the last year as banks look toward short sales and loan modifications as alternatives to seizing homes.
While it is likely that REO and short-sale listings will continue for years, the media keeps touting how the distressed-property numbers are in decline. Lenders should be pursuing defaulters and liquidating their portfolios while the market is hot, but don’t be surprised if you see them do what most regular sellers are doing – waiting for prices go higher.
