California foreclosure blog

The latest version of the much anticipated foreclosure bailout bill may leave more than half of California's homeowners out in the cold. The controversy is in the difference between the House and Senate versions of the bill. Specifically, the Senate version seeks to cap the eligible loan amount at $625,000, down from the current FHA loan cap of $729,750 set earlier this year. The House version retains the current loan limit.

The proposed legislation will allow borrowers in foreclosure to get a new FHA loan, provided the lender cooperates. And lenders have two reasons to deal: first, they get a government insured loan, and second, the loss the lender has to accept to participate is usually far less than the loss associated with taking a property back.

California Senator Barbara Boxer has pleaded with her colleagues in the Senate to ditch the lower loan cap because many California homeowners will not qualify for help under the $625,000 loan limit. Nationwide, about 97 million Americans would lose out because they live in areas with house values beyond the proposed lower limit.

To further complicate matters, the bill has been pulled from consideration in the Senate because of one Senator's attempt to tack on a Renewable Energy tax credit. Even with this setback, many in Congress are optimistic that the bill will eventually pass because of broad bi-partisan support.

Hopefully, the folks in Washington will be able to come together after their July 4th recess.

According to RealtyTrac, May 2008 foreclosures are up 48% nationwide compared to May 2007, and REOs nearly tripled in May 2008 over May 2007 (73,794 vs. 28,548). RealtyTrac estimates that total current REOs nationwide total 700,000 properties.

On a local note, in California, RealtyTrac reports 71,390 new Notices of Default recorded for May 2008, an 11% increase from April 2008, and a whopping 81% increase compared to May 2007.

California's State Assembly approved a bill that would add new requirements to the foreclosure process. SB 1137 received wide bi-partisan support, and was approved by a 2/3 majority, making the bill veto-proof.

The bill requires lenders to contact borrowers in trouble to attempt a loan workout prior to starting a foreclosure. Tenants also receive a new protection: a tenant in a foreclosed property must now be given a 60 day notice prior to starting an eviction. Formerly, a tenant in a foreclosed property became a trespasser once a property went to auction, because their lease was usually junior in priority to the loan in foreclosure. For owners of foreclosed properties (mostly lenders, but also investors), the bill allows daily fines of up to $1000 for failure to maintain a property.

**UPDATE**: On Thursday, July 3, Governor Schwarzenegger indicated that he will sign the bill, making most of its provisions effective immediately.

Wachovia's growing pains continue. The bank has decided to waive  prepayment penalties related to its "Pick-A-Pay" option ARM loans, a program that was long popular with Golden West Financial (World Savings). In fact, Wachovia acquired Golden West to grow its home lending business.

What a bust.

For years, California-based Golden West, and its affiliated bank, World Savings, were known locally for being portfolio lenders - lenders who kept their loans, rather than selling them to Wall Street. This fact was often cited as another reason for the Wachovia acquisition. And Golden West did much of their business locally: about 60% of their Pick-A-Pay loans were made in Califonria.

Apparently, Golden West let their guard down during the last real estate boom: Wachovia estimates that the $120 billion Pick-A-Pay loan portfolio will lose 7 to 8 percent of its value. That's somewhere between $8.4 and $9.6 billion. Faced with this prospect, it's no wonder that Wachovia would rather re-write loans, or take early payoffs.