The federal government has supplied California with additional funds and time to continue its multi-year foreclosure relief program.

The effort “intended to prevent home foreclosures that was expected to shut down next year is instead being expanded and extended following a new influx of federal funding,” the Los Angeles Times reported. “Keep Your Home California, which already had been awarded nearly $2 billion, will receive up to $463.5 million in additional federal money to aid troubled borrowers.”

“Treasury announced the increase [Feb. 19] as part of a $2 billion expansion of its Hardest Hit Fund, which launched in 2010 and earmarked $7.6 billion to 18 states and the District of Columbia. California will receive about $213.5 million in the first distribution of new funding. The state could get an additional $250 million in a second phase, which the department expects to award by the end of April.”

California recently shook off the stigma of the country’s highest rate of foreclosures. But the lingering effects of the housing bubble will take years to mitigate, even with a stable economy. Last year, the state “had the nation’s fourth-highest inventory of foreclosures ready to sell,” according to the Orange County Register. “38,000 vs. 48,000 in 2014. New York was first (91,000); then Florida (87,000) and New Jersey (66,000). Nationally, the foreclosures inventory ended 2015 at 689,000 – down from 881,000 a year earlier and the lowest level since 2006.”

“Since 2007, 7.1 million homes were lost through foreclosure nationwide,” the Register added. “Some 1.2 million of those actions were in California, the state hardest hit by the Great Recession’s mortgage meltdown. Next was Florida (872,000) and Michigan (407,000).”

New legislation

In Sacramento, a bill has recently been introduced to extend greater foreclosure protection to widows and widowers. State Sen. Mark Leno, D-San Francisco, sought to provide “protections against foreclosure that are available to other homeowners but not to spouses and children of deceased kin,” the San Jose Mercury News observed. Lenders, Leno’s office indicated, said “survivors who are not on the loan are not covered by California’s Homeowner Bill of Rights[.]”

By Steven Greenhut

SACRAMENTO — Just as the housing industry is showing signs of recovery, California’s Democratic officials have concocted a “solution” that adds regulations and higher costs to the foreclosure process. These are the same officials who can’t produce an honest budget and refuse to deal with a deepening public-employee pension crisis and other issues under their purview, but once again they think they can correct problems in complex private markets.

The newspaper photograph from Tuesday showed legislators and the state attorney general congratulating themselves for their work on a Homeowner Bill of Rights, which they believe will be emulated in other states. It is based on a national legal settlement between states and five banks and is likely to be signed into law by Gov. Jerry Brown.

Most news coverage makes the legislation sound benign. The bills would stop lenders from engaging in “dual tracking,” whereby they engage a distressed homeowner in a loan modification while also beginning the foreclosure process. The legislation also would require banks to assign one group of employees to deal with each person’s mortgage situation and ban those robo-signed documents.

I’ve dealt with banks in buying and selling houses, and they are almost as bureaucratic and uncaring as government officials, so I understand those complaints.

But summaries of the legislation, authored by the California Chamber of Commerce, get to the heart of the problem: The legislation “[c]reates procedural traps to impede the foreclosure process and delay lenders’ ability to recover collateral legitimately in foreclosure, and creates a private right of action that could discourage investment in California’s housing market and make capital more expensive for consumers.”

Increased costs

A recent study from Beacon Economics finds that various proposed mortgage reforms will delay the foreclosure process and thereby increase the costs of this process. That will only make it harder for these properties to work their way out of the system, increase lending costs and tie everything up in litigation and red tape. The real key to reform is letting the market sort itself out, not creating a vast expansion of damages that attorneys representing homeowners can seek.

A Sacramento Bee editorial supported the bills, but noted:

“But once the measures take effect, legislators need to monitor them to ensure their actions don’t have unintended impacts on the housing market, as banks, real estate agents and the California Chamber of Commerce have warned.”

Can anyone who covers the state Capitol seriously believe such monitoring will happen or that the same people who created these bad bills will know what to do to fix them once things go awry?

Everyone at the Capitol ought to read this part of the Beacon report:

“All indications show that the number of distressed mortgages in California has fallen dramatically from its high of three years ago, even as the overall market has begun to find its footing. Sales are trending up, and prices have started to move off their 2011 bottom.”

That conclusion conforms to what I’ve been reading and seeing, as short sales have helped work distressed properties out of the system.

Competition

In stronger markets, such as Orange County, there’s heated competition to buy foreclosed properties. Even in some hard-pressed inland housing markets, prices are going up slightly. These are important signs of life in the housing market. What will happen when more lawyers get involved, and more regulators require an even taller stack of documents for each transaction?

Even the Sacramento crowd has been one-upped for heavy-handed governmental ideas by officials in San Bernardino County and in the cities of Fontana and Ontario. Officials there created a new government entity, a joint-powers authority, that will be empowered to seize thousands of underwater mortgages.

Scheme

It’s a convoluted scheme — concocted by an influential group of San Francisco investors called Mortgage Resolution Partners — that is brilliant in a sinister way.

Let’s say you owe $400,000 on your home, and it is now worth $200,000.

The government will use eminent domain – not to take your home by force but to take the note by force from your lender. With eminent domain, the government pays “fair market value” for the property, but experts say the note holders would be paid a wholesale value of about 20 percent less than the value of the property. In this hypothetical case, your bank would be paid $160,000.

The process would be funded by the new investors. You, the homeowner, would now be paying on that lower $160,000 figure, which would make your payments go down. The government believes it will be fixing the foreclosure crisis by eliminating your negative equity and encouraging you to stay in your home. And the firm that finances this (either MRP, or another company like it) will get properties on the cheap and will restructure the new loans on them, thus creating a fortune for investors.

It’s a “win-win,” according to supporters, except that it comes out of the hide of the current lenders, who would lose their property – or at least lose the chance to collect the money owed them. I can come up with a similar “win-win” scheme whereby I steal your money and spend it on a new car. Don’t complain. It’s a “win-win” for me, the car dealer and even the DMV.

For those who shrug off this money grab out of dislike for banks, consider that the plan, in order to avoid political push-back, exempts all Fannie Mae and Freddie Mac mortgages and those held by major banks, so it only targets privately held mortgages.

This is a troubling abuse of government power to advance the interests of private parties. Likewise, the only beneficiaries from the new Homeowner Bill of Rights will be private attorneys who gain a new target. These laws aren’t about fixing the mortgage crisis. They are about special interests using government to help them get their piece of the action before the crisis goes away.

By WAYNE LUSVARDI

On the eve of President Barack Obama’s State of the Union address, 16 California House Democrats pleaded for more relief for homeowners in foreclosure.  It was all show and no go, however. It was all meant to posture and pander before TV cameras and fawning newspaper reporters covering the State of the Union speech.

Dataquick real estate data service reported 61,517 more Notices of Default on delinquent home loans were filed in California during the fourth quarter of 2011.  But newspapers headlines are portraying that the delinquents’ elected representatives are “doing something” to save them.  Nothing could be further from the truth.

Of the 61,517 new Notices of Default filed in the fourth quarter of 2011, 60,289 were because borrowers were in default on multiple loans.  For example, a borrower could owe on a primary mortgage and a line of credit on the equity in his home.  There is very little any relief program can do when 98 percent of those delinquents are also in default on more than one loan.  Homeowners were pulling money out of their homes to live on as if it was a money tree. When all the leaves were plucked, the tree died. When the whole forest died, the economy died.

According to Dataquick, homeowners were typically nine months in arrears on their loan payments when the lender filed a Notice of Default.  The typical borrower in default owed $19,949 on a home with a $333,036 mortgage.  Most of the loan delinquents were in lower income areas where most households don’t pay income taxes.  So households that don’t pay income taxes added nearly $20,000 of debt.  The debt has created a hole in the state budget that can’t be plugged.  Lower income homeowners went on a feeding frenzy of “greed” that no pop journalist wants to write about.

Obama’s speech mentioned nothing about how homeowners saving $3,000 a year on their mortgage would even dent the foreclosure crisis in California. It would only help homeowners who are already financially responsible. But politics is a game of creating a perception that government can save you after it created a problem in the first place, in this case the Housing Bubble.

Foreclosures Decreased but Were Offset by Short Sales

Short sales reflected 19.8 percent of all the re-sales of homes in the fourth quarter of 2011.  A short sale is where lender is willing to sell a home for less than the loan on the property.  Over the last four years, the percentage of short sales his climbed from 16.4 to 19.8 percent of sales.

Notices of Default and actual foreclosure Trustees Deeds recorded have somewhat declined. But this has been offset by the increase in short sales.

John Walsh of Dataquick said, “We are certainly seeing a lower level of foreclosure activity than a year or two ago.  The question is how much of that decline is due to market conditions, and how much is due to policy changes that try to address economic distress and lower home values.  Strategies now include short sales, refinances, interest rate changes, principal reduction as well as just plain waiting longer.”

Politicians want banks to delay foreclosures so the pols can stay elected. The banks seem to prefer just waiting it out until the next election cycle is over to find out what policies will be implemented. Then they can proceed.

The Continuing Stark Reality

Unemployment is still running 11.1 percent in California.  There are still 281,142 initial unemployment insurance claims.  About one third of all home re-sales — 33.7 percent — were foreclosures in the last quarter of 2011 (down from 57.8 percent in 2009). Loan delinquencies remain clustered in areas with the lowest home values.  Nothing Obama or the Democratic contingent in Congress from California is doing is going to change this reality.  But the newspapers are reporting that your representative is “doing something.”

Into this stark reality, redevelopment agencies are absurdly bemoaning that yet more affordable housing is needed.  Owner-occupants bought about 70 percent of all foreclosed homes. Thus, the market, not government, was generating its own affordable housing.

Investors bought the other 30 percent of foreclosures.  They apparently returned the properties to affordable rental housing.

CA’s Democratic Congressional Posturers

Despite all of the above, California Democratic congresspersons complained that the foreclosure crisis was somehow worsened by the Republicans blocking the appointment of the head of the Federal Housing Finance Agency.

Said Rep. Dennis Cardoza, D-Merced, “The administration has been playing footsie on this topic.”

Cardoza is probably right. The president has been playing political football with foreclosures.  But that is probably not what Cardoza meant. The term “political football” refers to a problem that doesn’t get solved because of the politics involved.

Not to be outdone in political posturing and pandering, Rep Mike Thompson, D-St. Helena, said, “It’s not good enough to keep people in their home.”  Well, he’s right on that.  Just the 61,517 delinquencies filed in the fourth quarter of 2011 would equate to $20.48 billion in loan defaults. That would be the equivalent of the California state government’s structural $20 billion budget deficit all by itself.

Executive Action

But it was Rep. Jerry McNerney, D-Pleasonton, who probably “takes the cake” for his call for Obama to take executive action without Congress.  McNerney called for a “real plan for reducing the principal owed on underwater homes.”

Asked how much that would cost, Edward De Marco, the acting director of the Federal Housing Finance Agency answered, “$100 billion.”  It’s probably more like $1 trillion; $100 billion would be about five months of loan defaults in California alone.

Now there’s a true political panderer for you. The country and the state are already broke from the Housing Bubble.  And a congressman wants the president to wave a magic wand to give a $100 billion bailout to delinquent homeowners.  But we live in a system in which the president has to share power with the Republican-controlled House of Representatives that holds the purse strings.

Politics in California is mostly symbols and not substance.  But the newspapers and broadcast networks take it seriously. And the California electorate keeps electing them. And why not?  If you could get a free 20 grand and live in a home rent free for a few years until your home is foreclosed on, wouldn’t you vote for those who created such a plundering of wealth of the savings and pensions of the middle class?

While California burned, Obama and 16 California members of congress played a fiddle to the media.  At least their tune was in harmony with their constituents.