We’re going to find out now whether foreclosure moratoriums and new loan-modification programs will work.
Banks and mortgage lenders filed a record 11,049 new notices of default in the capital region in the first three months of 2009, La Jolla property researcher MDA DataQuick reported Wednesday. The firm cited a similar sharp rise in default notices – following a several-month lull – across all of California’s foreclosure belts.
The rise in defaults came as foreclosures fell for a second straight quarter across the capital region and California.
While the sudden spike in defaults suggested another major wave of repossessed homes to further drive down home prices, some analysts counseled caution Wednesday.
Bank of America spokesman Rick Simon said some of the uptick is a resumption of processing notices of default delayed last fall and winter during an early round of foreclosure moratoriums.
“The loans that were deemed eligible for that were not advanced for foreclosure during that time,” he said.
“Some is catch-up, and some is just new default activity related to job losses,” said DataQuick analyst Andrew LePage.
Unemployment reached 11.3 percent in the El Dorado, Placer, Sacramento and Yolo counties region in March and is expected to top 12 percent. Statewide unemployment in March stood at 11.2 percent.
Major lenders and mortgage investors such as Fannie Mae and Freddie Mac initiated foreclosure moratoriums in October and November while awaiting the holidays and new government loan-modification guidelines and incentives. President Barack Obama subsequently outlined his Making Home Affordable program last month, offering financial incentives to lenders to refinance and do loan modifications that reduce monthly payments to 31 percent of borrowers’ incomes. Many moratoriums expired in March.
Regionally, the tally of mortgage defaults almost doubled from the previous quarter in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties.
The eight-county region already has seen 37,455 foreclosures since the start of 2007 and home prices decline sharply as bank repossessions became two-thirds of sales. Now hopes run high that the defaults don’t lead to a new round of foreclosures just as the area seems to be clearing out its inventory of repossessed homes.
Sacramento-area foreclosures – and those across California – dropped again sharply in January, February and March. DataQuick reported 3,881 first-quarter foreclosures in the eight-county capital region, down from 4,413 in the fourth quarter of 2008. The first-quarter tally was also well below the peak of 7,769 foreclosures in the third quarter of 2008, and lowest for the region since the end of 2007, DataQuick said.
Statewide, 43,620 people lost their homes in the first quarter, DataQuick reported, raising the number of California foreclosures to 365,000 since the beginning of 2007.
Still, the quarter’s 135,431 new notices of default represent the biggest challenge for a financially challenged banking system under pressure to modify loans and stop foreclosures.
JPMorgan Chase, which bought failed thrift Washington Mutual in September, has 2,500 U.S. staffers working with struggling borrowers, and “there’s still a need for extra arms and legs,” said Gary Kishner, a California-based Chase spokesman.
“It’s not always as simple as putting a number into a program and having it spit out information,” he said.
It remains to be seen if the new loan-modification programs will ease the problems seen in earlier efforts. Borrowers have complained frequently of difficulties in dealing with loan servicers, many handling mortgages that were chopped up and sold to global investors and made by companies that no longer exist.
Meanwhile, some real estate brokers, like Ron Leis, broker-owner at Prudential NorCal Realty in Carmichael, say they believe the foreclosure slowdowns and moratoriums are simply delaying the inevitable and prolonging the housing crisis.
Anecdotally, it’s believed that many Sacramento-area homeowners are living in houses for months without paying mortgages and waiting through moratoriums and processing delays for banks to finally evict them. That’s created a “shadow inventory” of homes expected to come to market as foreclosures, Leis said. These houses don’t show up in statistics that portray a rapid drop in for-sale inventory – usually, a positive indicator of recovery – and add uncertainty to the market.
“I felt like we were starting to feel the bottom of the market last year at this time,” said Leis. “Now, we’re all thinking there’s going to be another big burst of these properties that could have another negative impact on prices.”
But even that is not certain.
California will institute a new, additional 90-day foreclosure moratorium starting early this summer for lenders that fail to exhaust all alternatives to foreclosing on a borrower.