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Foreclosure: The Stop California Home Loss Blog

Are you at risk for foreclosure in the state of California? Proper-t-Solutions' presents Foreclosure: The Stop California Home Loss Blog. This blog is the homeowner's guide to determining your options when at risk for foreclosure. Read our articles, leave your comments and let's beat foreclosure and stop California home loss.


Residential Foreclosures Down in California for first half of year

Residential foreclosures in California in the first half of 2010 were down 5% from the last six months in 2009. However, the only reason this happened was because lenders were approving short sales.  That is, allowing the homeowner to sell the house for less than the amount of mortgage owed.

Residential Foreclosures Down in First Half but Only Because Lenders OK Short Sales - Real Estate Channel Global News Center

Foreclosure filings were reported on 313,841 U.S. properties in June, a decrease of nearly 3 percent from the previous month and a decrease of nearly 7 percent from June 2009.

States with foreclosure rates ranking among the nation's 10 highest were California (2.54 percent), Utah (1.91 percent), Georgia (1.79 percent), Michigan (1.73 percent), Idaho (1.68 percent), Illinois (1.61 percent), and Colorado (1.40 percent).

340,740 California properties received a foreclosure filing in the first half of 2010, the nation's highest total but down 15 percent from the previous six months and down nearly 13 percent from the first six months of 2009.

Unfortunately, June was the 16th straight month where the total number of properties with foreclosure filings exceeded 300,000.

"That means the housing industry as a whole remains fragile", says RealtyTrac CEO James J. Saccacio.

The figures are in themselves alarming and the cost to homeowners is not just noted in terms of money, but stress (for themselves and their families) and given the state of the economy and a lack of true job growth at present, I don't feel we have seen the last of the problems yet.


Record Number Of Foreclosure Sales Cancelled Due To HAFA…Short Sales

Researchers at Foreclosure Radar received a range of reasons as to why the cancellations are up. Foreclosure sales can be canceled for successful loan modifications, short sales, a legal requirement, or even a filing error. However, the best answer came from one unnamed REO professional. According to the source, the Home Affordable Foreclosure Alternatives (HAFA) program had the most to do with the cancellations.

Record Number Of Foreclosure Sales Cancelled Due To HAFA…Short Sales

Lenders canceled nearly 22,000 California foreclosure sales in June, driven mostly by JPMorgan Chase (JPM: 40.48 +3.29%). It’s a 27% increase from May, a 153% growth from a year ago, and an all-time high, according to ForeclosureRadar, which tracks foreclosures in the state.


Home Affordable Modification Program 

The Home Affordable Modification Program (HAMP) is a federal program that was created to help prevent mortgage foreclosure in California and other states that suffer economically.  The hope was that HAMP would reduce the losses that the lenders and the federal government would incur. 

Banks Required to Participate to Prevent Mortgage Foreclosure (California)

Banks receiving the bailout funds are required to participate in the Home Affordable Modification Program in order to help prevent mortgage foreclosure in California and the other states heavily impacted by the real estate lead recession.  Regrettably, it appears that lenders are attempting to benefit from the stimulus funds, and at the same time, shift their losses onto homeowners, and with fees, penalties, and by collecting payments from families participating in HAMP’s loan modification program without granting them permanent loan modifications.  This strategy can hardly prevent mortgage foreclosure (California).

Bank Behavior is a Barrier to Preventing Mortgage Foreclosure California

At the end of 2009, only 2,000 homeowners (less than 1%) had been granted a permanent loan modifications from over 650,000 total applicants. The other applicants were placed in trial modifications only, which required them to make their monthly payments, without ever receiving final approval.  According to the Fitch rating agency (they rate the banks’ performance), the average loan modification payment was 64% of pre-tax income.  As a result, many homeowners are becoming increasingly agitated by the banks because their saving are being eaten-up by the payments.   Additionally, many homeowners have been cut from the program on technicalities despite having made the high monthly payments that were required.

The HAMP program is seen by most as a complete failure.  The only winners are the banks who seemingly deceived the homeowners to get the extra payments from them.

Recently, a prominent law school has shown how the federal government and lenders are engaging in a campaign of guilt and fear to coerce families into continuing or resuming their monthly payments.

  • The lenders are not willing to accept the financial losses that would result from permanent modification, despite having received federal bailout monies. 
  • Some lenders are even developing strategies to increase the penalties and fees revenues from non-performing loans.
  • For homeowners that clearly cannot afford their loans, it appears evident that many lenders are attempting to get as much money from the applicants as possible before foreclosing.  This approach also keeps the property occupied (reducing vandalism), and yields some revenue for the lenders.

 What the Obama administration is quickly learning is that the federal government cannot easily legislate regulations that modify contractual agreements in the private sector.  The banks are playing hardball with the homeowners (and the federal government).

 In the final analysis, lenders are operating for a profit.  Their values are very different from the government, who does not operate for a profit.


Need to Reduce Debts While Preventing Foreclosure in California

Many distressed homeowners are hoping to prevent foreclosure in California and reduce debts.  This is becoming extremely critical for these families because the economy is expected to worsen as our nation’s largest stimulus spending plan begins to fade. The stimulus helped prop-up the stock market for a while, but stock prices are slipping again.  Making matters worse, the stimulus has increasing our national debt at a faster pace than we have ever seen.  The federal government and the G-20 nations needs to focus on reducing debt because these debt levels are destabilizing to our economy, which may actually cause more mortgage foreclosures in California.

US Must Reduce Debts

Our national debt already exceeds $13 billion, even before counting entitlement programs like social security.  This is roughly equal to the US’s annual gross domestic product (GDP) and roughly double the US’s debt-to-GDP ratio during the Reagan administration.  Because the stimulus was financed by issuing debt and expanding the money supply, it will be problematic for the US to create any more stimulus.  At the current rate of growth, our debt is about to surpass the US’s debt-to-GDP ratio in 1945, at the end of World War II.

More Mortgage Foreclosures California Appear To Be Unavoidable

This has important implications for homeowners who are having difficulties making their monthly mortgage payments.  As the stimulus wears off and banks are forced to wrestle with the growing backlog of unpaid mortgages, there will be many more mortgage foreclosures in California.  This will create pressure for prices to fall even further, which is likely to encourage even more strategic mortgage defaults.

Strategic Mortgage Defaults

This is a scenario that banks are hoping to avoid, and that the federal government is trying to prevent through a major marketing campaign of fear and guilt.  As the economy worsens, more and more families may feel compelled to choose strategic mortgage default to avoid depleting whatever remaining savings they may have.  


It is a simple question – would we rather save what’s left of our family’s finances or help save the bank? Despite what the government and lenders are telling you, strategic mortgage default is both moral and appropriate for over-burdened families.  Families live and breathe and need to be cared for.  Banks are fictitious entities that can be created and disposed of at will.  The answer is obvious!

Despite this obvious answer, the government and lenders are relentless in their campaign to keep homeowners paying-off these unmanageable levels of debt. 

Are More Mortgage Foreclosures (California) Inevitable?

It is estimated that more than 25% of all real estate is worth less than the mortgage balance.  If distressed homeowners find themselves in a losing battle to save their homes and credit, strategic mortgage default is the wisest of decisions because it is much better to conserve funds for other family necessities.  However, it does not have to mean that a foreclosures will result.

With the proper help, strategic mortgage default can be implemented in a way to prevent foreclosure in California.  For example, short sales are a viable strategy if capable assistance is used to ensure a successful outcome.


Mortgage Strategic Defaults Targeted by Fannie Mae

Strategic mortgage defaults are being targeted by one of the nations biggest lenders. Strategic mortgage defaults usually occur when a home is worth less than the mortgage. This negative equity may prompt homeowners to walk away from their mortgage.

According to real estate firm CoreLogic, approximately 11.3 million homeowners (24%) have negative equity on their properties. Owing more on their mortgage than the home is worth homeowners may have been tempted to strategically default on their payments. If you add the additional 2.3 million people who have less than 5% equity on their homes, approximately 29% of homeowners are struggling financially, and the outlook remains gloomy.

Taxpayer-Owned Fannie Mae Attacks Struggling Homeowners
A default is considered strategic when homeowners have the capacity to pay, yet choose to walk away from their mortgage. The trigger, researchers say, is negative equity: When the value of a home is less than what the lender is owed on it, borrowers are more likely to strategically default.

7 years bad luck for Fannie Mae Strategic Defaults

Fannie Mae has stated that homeowners who strategically default or did not work "in good faith" to avert foreclosure through other means will be ineligible for new Fannie Mae-backed mortgages for seven years.

With so many homeowners struggling financially, and with lenders playing hardball with people's emotions as well as their finances, it can be difficult to know who to turn to for good advice:

  • What other options are their for homeowners unwilling to risk bad credit rating for the next 7 years?
  • Would it be better to consider short-sale vs. foreclosure?
  • Or is Strategic Mortgage Default still an option in some cases?

Our recommendation is to avoid foreclosure in nearly all cases.  The key is to work with someone who understands how to present your short sale case to the lender to avoid foreclosure and the Fannie Mae Strategic Default issues.