I've been receiving many calls and emails about California's so-called foreclosure moratorium, which went into effect yesterday. Frankly, I doubt it will actually do anything meaningful for struggling homeowners. Here's why:
Loan servicers can qualify for an exemption simply by filing a form with the state that claims the loan servicer has a modification program intended to keep people in their homes. Nothing in the law requires loan servicers to actually implement the programs (you know, where borrowers actually get their loans modified in a meaningful way), and there's no real mechanism in place to confirm that loan servicers are actually doing anything. Who from the state is going to audit the loan servicer activity? As far as I can tell, no people have been assigned to this task, and more importantly, the state has no money to pay such people because the state is currently broke.
But here's the really interesting part: all this law does is temporarily extend the time between a Notice of Default and Notice of Sale from 90 days to 180 days for lenders who either fail to comply with the requirements, or who choose not to comply.
Why would a loan servicer choose not to comply? Well, there are three reasons:
1) Waiting another 90 days costs the loan servicer little to nothing.
2) So many loans at risk for foreclosure have no lender insurance. If a loan is not guaranteed by the FHA, VA, Fannie / Freddie, or private mortgage insurance ("PMI"), then the note holder absorbs the entire loss when an upside down loan is foreclosed.
3) Lenders have a large inventory of homes already owned because of foreclosure, plus even more in the pipeline. Adding some more time to the foreclosure clock could actually help lenders, rather than homeowners, because it would spread out the lenders' mounting losses on all the upside down properties they are in the process of taking back. This is important because in addition to the actual losses incurred when an undersecured loan is foreclosed, banking regulations require many lenders to set aside reserve money out of their revenue to cover those losses. So for loans owned by banks, the mounting losses start to have a real impact on their ability to use their revenue for their business operations. While I am unsure of whether this reality was factored into the "stress tests" that the government put major banks through earlier this year, it certainly should have been a component.
Thanks for this post! I agree with you--they are just prolonging the pain. They should just let the market hit rock bottom so that we can get started on the road to recovery!
Foreclosing Banks Neglect Property - cost lives
It did not have to happen.
The December 29, 2010 fire in Oakland took the lives of a man, a young mother and her small child leaving a seven year old. The NY bank property owner failed to install smoke alarms in the Oakland apartments which the bank owned since 2007. Many banks are foreclosing on properties where people live and are failing to take the responsibilities that property ownership requires.
Banks foreclosing on condominiums frequently stop paying real estate taxes and home owners association (HOA) fees causing the remaining homeowners to make-up the shortfall. The HOA usually puts a lien on the condo to recover the arrears HOA fees, which may be paid only after back taxes.
The bank then tells the HOA it has a buyer who won't cover the arrears HOA fees. The bank makes the HOA a take it or leave it offer. If the HOA leaves the offer then the remaining owners will continue to cover the shortfall.
Banks frequently do not keep up foreclosed properties nor do they assure the properties are safe and secure so they don't turn into crack houses or catch on fire, like the one in Oakland.
Legislation that reverses this situation with teeth that penalizes banks for violations would make the banks want to negotiate as an alternative to foreclosure. The legislation should state:
¨ Banks that foreclose must continue to pay HOA membership fees and real estate taxes - on time.
¨ Foreclosed property must be kept safe and maintained so as not to drive down near by property values.
¨ Foreclosed property must be safe and secure to assure that it is not vandalized or used for illegal purposes.
The benefits of legislation that supports these concepts include:
¨ Improving public safety and health of those occupying foreclosed property and those near by
¨ Protecting home owners who had no role in the foreclosure from rising HOA fees and decreasing property value due to neglected near by properties.
¨ Making the decision to foreclose more painful for the banks;
o Reducing the number of foreclosures
o Increasing the number of re-negotiated mortgages
A property owner has a responsibility to make the property safe, clean and up to pertaining codes.
The owner can face criminal penalties when neglecting those responsibilities results in damages.
Frequently banks shirk those responsibilities.
In Oakland it resulted in fatalities.
Contact your elected officials while the memory of this tragedy is still fresh in the mind. Pass this on.
http://www.calitics.com/diary/12996/banks-neglect-cost-lives has this article