California Lawmakers Pass Historic Foreclosure Protections

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California lawmakers recently have passed legislation that would provide homeowners with some of the nation’s strongest protections from foreclosure and practices such as seizing a home while the owner is negotiating to lower mortgage payments.

The legislation would make California the first state to prohibit lenders from “dual tracking,” the practice of negotiating with clients to modify a mortgage so that payments become more affordable while simultaneously pursuing foreclosure. In such cases, homeowners can wind up being evicted even though they had been working with the bank to modify their loans.

Here are key provisions in California’s homeowner protection bill, which writes into state law the national mortgage settlement reached with five top lenders, and expands it to all mortgages:

  •  Lets homeowners sue mortgage providers if they violate state law, but only if there is a significant violation. Homeowners could ask judges to halt pending foreclosures but could collect monetary damages only if the foreclosure took place.
  • Requires lenders to provide a single point of contact for borrowers who want to discuss foreclosures or refinancing, with an exemption for lenders that process fewer than 175 foreclosures per year.
  • Bans what are known as “dual-track foreclosures” by barring lenders from filing notices of default, notices of sale, or conducting trustees’ sales while they are also considering alternatives to foreclosures like loan modifications or short sales.
  • Increases penalties for banks that sign off on foreclosures without properly reviewing the documentation, a process known as robo-signing.

The new California could have national implications.  It is expected to become a catalyst not only for a recovery of California’s real estate market, but a catalyst across the nation as borrowers everywhere begin to demand the same protections given to California borrowers.

Shadow Inventory Drops to 3 Year Low

Nationally, shadow inventory fell to it’s lowest level in 3 years in April, according to a report from real estate data aggregator CoreLogic.

Shadow inventory was down 14.8 percent year over year in April to 1.5 million units. That’s a four-month supply, down from six months in April 2011 and about the same level as in October 2008.

“Since peaking at 2.1 million units in January 2010, the shadow inventory has fallen by 28 percent. The decline in the shadow inventory is a positive development because it removes some of the downward pressure on house prices,” said Mark Fleming, CoreLogic’s chief economist, in a statement.

“This is one of the reasons why some markets that were formerly identified as distressed, are now experiencing price increases.”

CoreLogic defines shadow inventory as properties seriously delinquent by 90 days or more, in the foreclosure process, and those that have finished the foreclosure process and become REO (real estate owned) but have not yet been listed for sale.

The dollar volume of shadow inventory fell about 9 percent in April, to $246 billion — a three-year low. Of the 1.5 million units comprising the nation’s shadow inventory, 720,000 are seriously delinquent, 410,000 are in some stage of foreclosure, and 390,000 are unlisted REOs, CoreLogic said.

Delinquencies fell most in Arizona (-37 percent), California (-28 percent), Nevada (-27.4 percent), Michigan (-23.7 percent) and Minnesota (-18.1 percent), CoreLogic said.

National Foreclosure Settlement Update

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After more than a year of wrangling the nation’s five largest banks have reached an agreement to settle charges of abusive and negligent foreclosure practices. The initial complaint was brought forth by a group of state’s attorney generals who claimed banks lost important paperwork and enlisted robo-signers to attest to facts on hundreds of documents a day. The unprecedented joint agreement is the largest federal-state civil settlement ever obtained.

The settlement provides up to $25 billion in relief to distressed borrowers who may have been affected and directs payments to states and the federal government. The banks and servicers have committed at least $17 billion to reduce principal for borrowers who 1) owe far more than their homes are worth 2) are behind on payments.  Unfortunately, not included in the deal are mortgages owned or backed by Fannie Mae and Freddie Mac.

Key components of the settlement are listed below and no doubt will have an impact on the supply of foreclosure inventory in the future.

• The settlement also prohibits robo-signing, improper documentation and lost paperwork. Banks must review foreclosure documents individually as the law requires. Financial institutions must communicate with mortgage holders, reducing delays in the loan-modification process.

• The agreement makes foreclosure the last resort by requiring servicers to evaluate homeowners for other loss mitigation.

• Banks will be restricted from foreclosing while the homeowner is being considered for a loan modification.

The entire settlement document is now available online for review and can be accessed by clicking here. Feel free to forward our post to anyone you think may benefit from the settlement.