California Foreclosure Moratorium Begins
HOME LOANS, INDUSTRY NEWS
June 24th, 2009
As of June 15, a 90-day moratorium on foreclosures in California took effect allowing some homeowners more time to ask their lender for a loan modification. Lenders that already have a comprehensive loan modification program in place, as defined by the California Foreclosure Prevention Act, are exempt from the time extension.
The law applies to owner-occupied residential properties encumbered with a first deed of trust recorded between January 1, 2003 and January 1, 2008. In essence, the existing 90-day period, during which a borrower can reinstate the loan by making up back payments and penalties, has been extended another 90 days. The goal is to allow more time for the borrower to negotiate a loan modification.
Thus far, loan modifications offered by lenders have failed miserably. Two key elements have been largely missing in past efforts:
- Principal reduction-regardless of other tweaks made to loan terms such as lower interest rates or lengthening loan repayment periods, borrowers are reluctant to agree to a loan modification unless the loan balance is reduced to reflect current market value. It is a rare occasion when a lender agrees to forgive a portion of the loan principal balance.
- Lenders are not taking the time necessary to fully and correctly analyze a borrowers ability to make future monthly mortgage payments if a loan is modified.
This effort to slow the foreclosure process is likely to extend the recovery period for the housing sector of the California economy. If lenders were required to write down the loan balance, this delay could have a positive impact allowing some homeowners to keep their homes. Furthermore, the California marketplace thus far has an insatiable demand for bank repo’s in the lower price brackets. Delaying the foreclosure process may reduce the supply of affordable homes for first-time buyers and investors alike. This problem will be compounded if current ultra-low mortgage interest rates head upward in the months ahead. Mounting federal deficits are expected to cause a significant interest rate spike in coming years, according to some housing economists.
The moratorium will stay in effect until January 1, 2011 unless extended or deleted by statute.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
CORNER OF COURT AND PLACER IN REDDING
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
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