The rise in number of home loan defaults in California in June is expected to put more properties into foreclosed homes listings across the state, based on an analysis of state foreclosure data.

The percentage of delinquent mortgages in California has increased to about 10 percent of all mortgage loans, which means that one homeowner out of all homeowners with home loans across the state has missed monthly loan payments and has received a notice of delinquency.

In Los Angeles County, the percentage of borrowers in default is the same as that of the state, which is around 10 percent.

Notices of default are the first notices sent to homeowners when they miss their loan payments. This notice also marks the first stage of the legal foreclosure process.

Last June, the percentage of delinquent mortgage borrowers in Los Angeles increased to 9.9 percent of all homeowners with home loans, an increase from 9.5 percent in May. The default rate also marked a nearly two-fold increase from the 5.2 percent delinquency level in June last year.

Across California, 9.5 percent of all homeowners with mortgages were delinquent in June, an increase from the 9.2-percent level in May and a substantial increase from the 5.8-percent delinquency level in June last year.

What decreased in California and in Los Angeles County in June were completed foreclosures and the number of properties entering banks and lenders? foreclosed homes listings. In June, the repossession rate in Los Angeles County was 0.9 percent of all mortgage loans, a drop from the 1.2-percent level in June last year.

Across the state, the lender repossession rate was 1 percent, a drop from the 1.6-percent level in June last year.
Clearly, completed foreclosures and repossessions were lagging delinquencies.

Analysts say many banks are controlling their foreclosed homes listings to prevent sharp declines in home prices. Putting hundreds or thousands of their foreclosure properties in one batch would push down home prices to their lowest levels and would cause more bank losses.

Other banks say foreclosures are not yet showing in their foreclosures homes because they are complying with moratoriums imposed by federal and state governments. Many also say they are waiting for revisions in foreclosure prevention programs implemented by the federal government.

All the same, according to housing analysts, with the rising default rates across California, more residential properties are expected to enter foreclosed homes listings in the coming months.

During the first year of the housing crisis, foreclosure inventories were overloaded with homes located in low-income neighborhoods as these where subprime borrowers lived.

But the persistence of the worldwide recession extended the arms of foreclosures into the enclaves of the rich, as stock markets, financial multinationals and non-housing industries also collapsed. Even executives who were well-ensconced in their positions were affected by layoffs.

Previously, gated neighborhoods and more affluent communities were thought to be immune from foreclosure actions because people who lived in these areas obtained prime loans and had higher-income occupations and businesses.

In May, there were nearly 1,000 foreclosure listing homes sold, an increase of over 9 percent from sales in April, but represented a 36.7 percent decrease from sales in May 2008. There were 3,059 default notices, a 9.3 percent decline from April and a 2.5 percent drop from May 2008.

In May, sales of foreclosure homes in several affluent areas reached record levels.

In the Carmel Valley area, where most homes are priced around $676,500, a total of 44 default notices were sent to homeowners in May, an increase from the 14 notices sent in May 2008.

In the affluent coastal community of Del Mar, sales of foreclosure homes totaled 54 units.

For many months, affluent homeowners use their resources to withstand the effects of the foreclosure crisis, but as the recession persisted and worsened, their investments and income-producing businesses faltered.

Real estate analysts contend that foreclosure listing prices of houses in affluent neighborhoods will increase the level of median home prices in San Diego, even if the higher-priced homes are sold at a discount because of their rising sales pace.

In the neighborhood of Kensington-Normal Heights, out of 43 homes sold in May, 29 units were foreclosure listing sales. The median price was $304,000 a 17 percent decline from the price in May 2008.

In Hillcrest-Mission Hills, where most homes are priced around $416,000, out of the 39 home sales in May, 21 were foreclosure listing sales.

Housing analysts said that the major factors for the rise in foreclosure listing sales in more affluent areas are the loss of high-income jobs, collapse of businesses and the difficulty of getting jumbo home loans.

In May, California had 92,249 housing units hit with foreclosure filings, the highest figure among state foreclosures. The number represented an almost 23 percent increase from filings in May 2008.

The number of bank repossessions declined by 1 percent compared to April while defaults dropped by 18 percent. However, the number of auctions scheduled to sell properties in foreclosed home listings increased by 18 percent.

Marty Rodriguez, founder of Glendora-based broker Century 21 Marty Rodriguez, said she and her fellow brokers are still waiting for bank owned foreclosed properties that were not released before the foreclosure moratoriums. She said brokers received insider information that there are more bank owned homes still to enter the market.

Rodriguez said many homeowners who applied for loan modification during the foreclosure moratoriums failed to qualify, causing more properties to be added to foreclosed home listings.

Rodriguez also added that she has been receiving multiple offers on bank owned real estate owned properties because banks have priced them aggressively to get more offers. She said many of the offers have been exceeding the asking price because of the competition.

The over 92,000 foreclosure filings in California as reported by RealtyTrac included all filings in different stages of foreclosure: default, auction and real estate owned. The notice of default is given when the initial foreclosure is filed. The notice of auction is given when a trustee or foreclosure sale is scheduled. Properties are considered REO when they are foreclosed and repurchased by the bank.

The second state with the biggest number of foreclosure notices is Florida. Despite a decline in default notices, foreclosure auctions and bank owned foreclosed home listings compared to April, foreclosure filings increased by 50 percent to 58,931 units compared to filings in May 2008.

With 17,157 in foreclosure filings, Nevada ranked third among the states, according to the RealtyTrac report.

Rodriguez related that first-time buyers have been joining the frenzy in looking for bargain-priced units in foreclosed home listings. They are trying to beat the deadline for the $8,000 tax credit which is offered only up to the end of November.

With first-time buyers and investors competing in many markets, the asking prices for some properties in foreclosed home listings go up instead of going down. Rodriguez cited a Corona home which was offered at $507,000 and which was finally sold at $590,000, still a bargain when the original price of $860,000 is considered.

Take the case of pool skaters in Fresno, California who decided to use the backyards of repossession homes where abandoned pools are located.

It used to be that pool skaters in the city converged at the old abandoned pool at Fresno’s Vagabond hotel. According to Josh Peacock, a pool skater, the Vagabond pool has been the favorite hangout of skateboarders for 15 years.

However, when the city allowed a developer to cover the pool at the Vagabond, skateboarders decided to use the abandoned pools at repossession homes. According to skateboarders, sometimes they ask permission to use the pools, but sometimes they just trespass. They believed that by using these abandoned pools in repossession homes, they are doing a service for the neighborhoods.

The foreclosure crisis has created a health-related problem associated with abandoned pools in repossession homes. Most of these abandoned pools have stagnant water that is a favorite breeding ground of mosquitoes. And city officials are concerned that these mosquitoes may cause a West Nile virus epidemic.

What these pool skaters do is pump out the water from the pool, and in the process taking away the mosquitoes and make the pools safe. By using the pools, skateboarders also help the city by attracting skaters from other parts of the world.

The Central Valley is the center of skateboarding. To take advantage of the popularity of this extreme sport, Fresno has constructed several skate parks. However, most skateboarders prefer to use a pool because they claimed that skate parks do not have the same appeal as pools.

The popularity of pool skateboarding and the use of abandoned pools in repossession homes have caught the attention of filmmaker Steve Payne who plans to depict the economic and foreclosure crisis through the growth of pool skating in Fresno.

The number of California’s repossession homes increased by almost 36 percent in the first quarter of 2009. For the same quarter, foreclosure filings were made on 230, 915 homes, a 35 percent rise from the last quarter the previous year and 36 percent higher from the first quarter of 2008.

The unabated increase in the number of repossession homes in the state is attributed to its high unemployment rate, undervalued home prices and a large foreclosed property inventory.

Attorney General Brown has also required them to post a bond of $100,000. Any foreclosure prevention consultant or counselor not complying with the order will face a jail time of one year and up to $25,000 in fines for every violation.

Brown said he is concerned about the rising number of California homeowners spending thousands of dollars in paying foreclosure prevention consultants only to find out later that their homes have already become foreclosures homes.

Brown explained further that California, being one of the states hardest hit by foreclosures homes, has been the favorite playground of fraudulent foreclosure prevention counselors making money from the fears of distressed homeowners.

In April, California is the third highest in foreclosure rate among the states, according to RealtyTrac’s data. One house in every 138 houses across the state was hit with a foreclosure notice during the month.

Foreclosure prevention consultants who are doing legitimate work and who are really able to work lout loan modifications with lenders will be able to pass the bond and disclosure requirements. Counselors and consultants who are just riding on freely available foreclosure information to extract money from troubled borrowers will be weeded out.

Foreclosure counselors who demand large upfront fees even before they start helping homeowners will also be screened out by the order.

The office of Attorney General Brown will issue a registration certificate for every foreclosure prevention consultant who will register and pay the bond of $100,000. Foreclosure consultants can visit http://ag.ca.gov/register.php listed under Foreclosure Consultant Registry to download the registration form.

Foreclosure consultants are required to submit their completed form and application by July 1.

When the registration of foreclosure prevention consultants and counselors has been completed, troubled homeowners who need assistance to save their houses from becoming foreclosures homes can call the office of Attorney General Brown to inquire about the certification and background of foreclosure consultants.

This effort by California Attorney General Jerry Brown to weed out fraudulent foreclosure prevention consultants is a supplement to the Fraud Enforcement and Recovery Act signed into law by President Obama last May 20. The law will fund federal agents to investigate and pursue cases against persons and companies found to be engaged in fraudulent mortgage activities that contribute to the rising number of foreclosures homes.

The law covers foreclosure properties still occupied by their owners who have taken out the original loans between the start of 2003 until January 1, 2008.

Senator Ellen Corbett explained that the law, whom she introduced as part of California?s budget package, is intended to help homeowners who are on the brink of losing their properties to foreclosure.

However, consumer advocates have criticized the law saying that there are unclear provisions that may drag the process of reducing the number of repossessed homes in California.

Under the California foreclosure moratorium law, regulators are given the authority to grant exemptions to loan servicers if they have existing mortgage modification programs that meet some criteria combinations, such as low interest rates for not less than five years, expansion of loan terms and deferment of a part of the loan principal.

Joe Ridout of the Consumer Action argued that it is impossible to defer $1,000 from the principal loan for 30 years.

To be eligible for exemption under the foreclosure moratorium law, a lender?s loan modification program should include a monthly mortgage payment adjustment of not less than 38 percent of distressed homeowners? income.

Consumer advocates argued that the exemption rule is inferior compared to other federal programs, including President Barack Obama?s Homeowner Affordability and Stability Plan which seeks to reduce payments to about 31 percent of the homeowner?s income.

Meanwhile, California Reinvestment Coalition associate director Kevin Stein said that the law is a regression from the progress that has been made by foreclosure prevention efforts.

He pointed that there is a significant difference between granting loan workouts and having a loan modification program, adding that the law does not seem to cater to the former and will not help reduce the number of repossessed homes in the state.

On the other hand, the California Mortgage Bankers Association, the California Bankers Association and other financial services organizations have written a letter opposing the foreclosure moratorium law.

According to the bankers, the foreclosure moratorium law will only cause uncertainty, restrict home sales and delay economic recovery.
On her part, Corbett defended her law by saying that she was restricted from introducing a more aggressive law by federal banking rules.

Real estate analysts say that foreclosures pull down properties’ prices, even those in higher-value neighborhoods, and that even homeowners who do not need to sell are waiting.

This is really a bargain-hunting time for you. As a matter of fact, there are a lot of first-time homebuyers now who are pleased of foreclosures pulling down prices, increasing affordability.

However, looking at the side of the home sellers and the housing industry, the fact that foreclosures comprise more than half of home sales do not actually imply a move-up purchase, instead it just repays lenders.

The North County Association of Realtors Homedex has reported in its affordability report that about 33% of San Diegans can afford the median-priced single-family home last month, and about 59% can afford a condo unit.

Median prices have dropped. An existing single-family detached house has now dropped to $335,000, and $204,000 for an existing condo. On the other hand, the median price of a new house has risen to $509,000 from $444,000 last year.

New home inventories have gone down. In fact, there are only 87 new home building permits that have been issued last month, which I a 20-year low as reported by the Construction Industry Research Board.

Almost 50% of home buyers in San Diego use government-insured, FHA financing. With the adjustments for inflation, current mortgage payments are now 37.4% lower than typical payments that have been made in 1989, which is said to be the peak of the early real estate cycle, and 48.7% lower than the peak of the current cycle in June 2006.

Grab the opportunity now and get that house of your dreams in the most affordable price.

After Schwarzenegger made his proposal, some Democratic lawmakers have considered re-introducing a measure aimed at lowering the number of homeowners who are in some form of foreclosure proceeding.

Assemblyman Ted Lieu, a Democrat of El Segundo, California, introduced a 120-day foreclosure moratorium, which in some aspects, is similar to the one proposed by Schwarzenegger.

Lieu was hoping to immediately bring the bill before the Assembly. However, the proposal got stuck on the Banking and Finance Committee and was never put on vote.

The committee opposed Lieu?s 120-day moratorium proposal, arguing that its duration is unacceptably long.

Lieu then revised his proposal and patterned it after Schwarzenegger?s 90-day foreclosure moratorium program. The lawmaker has always been a staunch supporter of programs to straighten out the home mortgage industry. He believed that stopping the surge of foreclosures is the most urgent issue that needs to be addressed by the national and local government.

Lieu pointed out that about one to one and a half years of risky adjustable-rate subprime loans have not been reset. He called on for an immediate action to address the foreclosure crisis to help ensure that funds will not be used to bail out financial companies.

Governor Schwarzenegger’s 90-day foreclosure moratorium gives him the authority to impose the law to California?s Commissioner of Corporations, a concession preferred by the banking industry
Lieu?s earlier version of the bill gave the power of enforcement to Business, Transportation and Housing. The assemblyman still plans to introduce a version of a bill on mortgage reform which aims to restrict subprime loan regulations. The bill, approved by the Legislature, was vetoed by Schwarzenegger in September of this year.

The data was taken from mortgage counselors coming from 44 different organizations authorized by the federal government to provide mortgage counseling. 68 percent of these counselors had clients who still ended up in foreclosures despite receiving help.

In a similar survey conducted last September, a slight improvement on the figures was achieved, although foreclosures still topped the outcome for homeowners seeking loan modification. More than 11,600 homeowners from California have been assisted by these agencies last September.

Although many lenders have pledged support to prevent foreclosures, counseling agencies have reported difficulties and frustrations in communicating with lenders who are very unpredictable. Lenders were either slow in providing assistance to borrowers or would lose processing documents thus delaying the loan modification process even more.

The goal in mortgage modifications is to prevent foreclosures by making monthly amortization payments current through affordability. Payments, inclusive of taxes and insurance, should be within 30 to 40 percent of a family?s monthly income flow. Lenders can achieve this by cutting down on interest rates, extending loan terms typically from 30 to 40 years, or providing a reduction on the principal.

However, bank experts mentioned that even with a reduced payment scheme, troubled homemakers might not have sufficient income to continue paying for these mortgages, and would still end up in foreclosures.

This statement is backed up by survey results from counselors who stated that 85 percent of homeowners they are working with already have reduced incomes and are underwater in their loans. Due to this, banks and lenders will most likely refuse a reduction on the principal that could make a substantial reduction in payments. Until a concrete solution can be done in the next few months, troubled families will most likely lose their homes.

California is one of the states hardest hit by foreclosures resulting from risky mortgages, including subprime loans availed during the peak of the housing market.

The state legislature has approved a bill that requires lenders to start initiating foreclosure proceedings 30 days after they have informed a borrower.

Karen Bass, California Assembly Speaker, explained that during the 120-day moratorium period, affected borrowers would be compelled to pay affordable loans. She believes that tougher times call for 120-day foreclosure moratorium instead of the 90-day proposed by Schwarzenegger in order to rework loans and address foreclosure problems.

Meanwhile, lenders can avoid imposing Schwarzenegger?s 90-day foreclosure moratorium proposal if they can show that they have a loan modification program in place.

Schwarzenegger wants California lawmakers to allow the state to implement federal laws and policies to regulate real estate licensees. He also wants to change lending practices to protect borrowers, including expansion of fiduciary duties covering mortgage brokers to allow them to modify a loan to suit a borrower?s conditions.

Furthermore, he wants to penalize lenders who issue false and misleading statements and to increase and standardize loan originators? licensing requirements.

The plan by state Democrats coincides with mortgage finance companies, Freddie Mac and Fannie Mae?s launching of a program to reduce monthly mortgage payments for homeowners having difficulty meeting their financial obligations.

Borrowers who are eligible for the program are those who are facing the threat of foreclosure. A borrower who spends over 38 percent of his income on paying his mortgage is also eligible for reduced monthly payments.