The California legislature passed the so-called Homeowners’ Bill of Rights, and Jerry Brown has indicated he will sign it into law. So how does this new law change the foreclosure process? Let’s take a closer look.
Calif. Legislature OKs homeowners’ bill of rights
Marisa Lagos and Wyatt Buchanan — Updated 11:33 p.m., Monday, July 2, 2012
What the legislation does:
Delays: Bans banks from proceeding with a foreclosure when a homeowner is seeking a loan modification, a practice known as dual tracking.
Dual tracking has always been part of the foreclosure process. Foreclosure is supposed to be a threat to compel a borrower to either pay up or sell and move out. Foreclosure is a threat designed to compel action. Banks use the threat of foreclosure to ensure borrowers are dealing with them in good faith. If a lender senses the borrower is not cooperating, they pull the trigger on the foreclosure to boot them out.
This provision came about because some borrowers were frustrated when they were negotiating with one division at the bank, and another foreclosed on them. There were instances where the left hand didn’t know what the right hand was doing. Was this widespread? Probably not, but many people who were denied short sales, often without explanations for the denial, were foreclosed on, and they felt the process needed clearer procedures. Perhaps they are right.
The details on how this is implemented matters. If the lender cannot begin the process while a borrower is applying for a loan modification, then after the loan modification is denied, each borrower gets four months of free rent while the lender waits the statutory timeframe. However, if the lender must simply halt the process, then very little has changed.
There is only a three week period between the Notice of Trustee Sale and the actual auction. If the lender has filed a NOD, something they will now be strongly encouraged to do in order to start the process, then they can process a loan modification request during the 90-day redemption period, which is what that period is intended for (loan modification is another form of curing).
If this change prevents the lender from taking the next step rather than the first step, then this law will have a positive impact. One thing it will likely do is streamline the loan modification process. When lenders finally want to stop amend-extend-pretend, they will want to process foreclosures in a timely manner, which means processing a loan modification request in 90 days.
This law will also require some clarification on the loan modification process. Is there a timeframe for borrower compliance? If not, this is ripe for abuse. What happens when the borrower is tardy with providing necessary documents? Is that an automatic denial? Does the borrower have the right to appeal a “no” answer? If so, what are the timeframes, and what is the process. If these items are not spelled out, attorneys will use these ambiguities to tie up lenders in loan modification requests for months to help their clients get more free housing.
Contacts: Requires banks to provide struggling borrowers with a single point of contact at the bank.
This is a good idea. This should eliminate most of the intra-bank communication problems. Borrowers should know who to call who can give them answers.
Answers: Requires banks to clearly explain to borrowers why they are rejected for a loan modification.
This is another good idea. Of course, borrowers may not like the answer they are given, but that leads back to the questions I posed above about the loan modification process. Once a borrower gets a “clear no” what can they do about it? Anything? Attorneys will take advantage of this part of the process.
Recourse: Gives borrowers the right to sue lenders for “significant, material violations” of the law.
This is another provision the attorneys are going to love as “significant, material violations” of the law is defined. If this provision has real teeth, like the law in Nevada, it could really put a damper on foreclosures and enshrine squatting for many in shadow inventory.
Fines: Subjects lenders to fines of $7,500 per loan for filing and recording unverified documents.
This is similar to the Nevada law. If the paperwork in California is truly shoddy, this will halt many foreclosures and give free houses to loan owner who don’t deserve them.
Limits: Applies to first-lien mortgages for owner-occupants.
At some point, I expect to see this broadened to cover seconds and HELOCs. Right now, those mortgages are unlikely to foreclose because they are underwater and have no value, but if prices do rise, these subordinate lien holders will play havoc on delinquent borrowers unless the banks create universal procedures for both first and second mortgages.
Brown’s on board
Gov. Jerry Brown indicated he would sign the measures into law. In a released statement he said, “The Homeowner Bill of Rights will prevent banks from throwing Californians out of their homes while they are trying, in good faith, to renegotiate their mortgages. This bill establishes important consumer protections that are long overdue and I commend Attorney General Kamala Harris for her determined pursuit of these changes.”
The provision for good faith is the key. Many borrowers will not negotiate in good faith. They will get attorneys to help them game the system for as long as humanly possible.
But Assemblywoman Diane Harkey, R-Dana Point (Orange County), and several other Republicans warned that if the bills passed, the “only people who will make money is attorneys.” She said the average foreclosure takes 352 days, which is “plenty of time,” for a homeowner to prepare.
She is right on both counts. The attorneys will find plenty of new business here, and with as long as the foreclosure process already takes, the idea that loan owners didn’t have time to resolve the situation is laughable.
“California is going to prevent our economy from being stimulated,” she said. “We are putting our fingers in the dike here, California communities are starting to bounce back, and the longer you delay recovery from the housing market, the longer property tax revenues will continue to decline. …”
Yes, perpetual shadow inventory extends the housing downturn and creates uncertainty.
Help for a loanowner
Pamela Hall, who has been struggling to keep her San Leandro condo for more than two years, said the measures “would have helped me and so many other people,” if it had passed earlier.
There is no help for the hopeless.
She and her husband – who is working two jobs – fell behind on payments when their adjustable-rate mortgage payment skyrocketed, almost quadrupling to $6,700 at one point. They owe $523,000 on a three-bedroom unit now worth about $250,000 and have stopped making mortgage payments altogether.
Why do they want to pay $523,000 for their $250,000 house? That’s what they would be doing if they managed to get a loan modification. If they walk from this house and repurchase in a few years, they could buy a similar house for about $250,000. They are paying a lot of extra money for their attachment to this house.
She has unsuccessfully asked Bank of American for a loan modification seven or eight times, said Hall, who was laid off from her office administrator job last year.
Another part of the loan modification process that needs to be defined is how many times you can apply. It should be once and done, perhaps with one appeal if there is new information. If people are allowed to apply seven or eight times, they will, and in doing so, they will game the system for more free housing.
“I’ve probably talked to about 40 people,” she said. “The story would always be: the paperwork is missing, we missed the deadline, we made too much money, we didn’t make enough money, we should get a renter – you name it.”
Let’s be real. This woman bought a house she couldn’t afford with an Option ARM (its the only thing that explains the dramatic payment shock). She probably couldn’t afford to amortize the principal over 30 years at zero percent interest. No amount of loan modification short of significant principal reduction will help her. Do we want to give people who bought homes they couldn’t afford such a break? I don’t think so.
As I wrote this post and thought more about this law, I see it has potential to improve the process if it isn’t abused. As with any new change, the devil is in the details, and there is still much we don’t know about how this law will be applied going forward. I expect to see lenders increase their foreclosure filings in 2012 in response to the January 1, 2013 deadline, but so much of what the banks have done has defied logic, that anything could happen.
Is more than three years enough time to process a loan modification?
Some borrowers certainly appear to game the system….
If the first NOD was filed in May of 2009, the borrower was likely delinquent at least three months by then, so it’s reasonable to assume this guy stopped making payments in 2008 or early 2009 at the latest. The Notice of Rescission is at least one failed loan modification. In all likelihood the delays were by the banks, but if this borrower wanted to game the system, he probably could have squatted even longer.
- This borrower paid $372,500 on 6/26/2003 using a $282,500 first mortgage and a $90,000 down payment.
- On 5/12/2004 he opened a $100,000 HELOC.
- On 7/1/2005 he refinanced with a $460,000 first mortgage
- On 10/27/2007 he refinanced with a $417,000 first mortgage and a $105,000 stand-alone second.
Total property debt was $522,000, and the total mortgage equity withdrawal was $239,500 over a four year period.
Cypress Overview
Median home price is $364,000. Based on a rental parity value of $495,000, this market is under valued.
Monthly payment affordability has been improving over the last 12 month(s). Momentum suggests improving affordability.
Resale prices on a $/SF basis increased from $246/SF to $248/SF.
Resale prices have been falling for 12 month(s). Price momentum suggests falling prices over the next three months.
Median rental rates increased $8 last month from $2,045 to $2,054.
Rents have been slowly rising for 12 month(s). Price momentum suggests slowly rising rents over the next three months.
Market rating = 5
Proprietary OC Housing News home purchase analysis 
5432 NELSON St Cypress, CA 90630
$403,900 …….. Asking Price
$372,500 ………. Purchase Price
6/26/2003 ………. Purchase Date
$31,400 ………. Gross Gain (Loss)
($29,800) ………… Commissions and Costs at 8%
============================================
$1,600 ………. Net Gain (Loss)
============================================
8.4% ………. Gross Percent Change
0.4% ………. Net Percent Change
0.9% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$403,900 …….. Asking Price
$14,137 ………… 3.5% Down FHA Financing
3.62% …………. Mortgage Interest Rate
30 ……………… Number of Years
$389,764 …….. Mortgage
$101,940 ………. Income Requirement
$1,776 ………… Monthly Mortgage Payment
$350 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$101 ………… Homeowners Insurance at 0.3%
$406 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,633 ………. Monthly Cash Outlays
($267) ………. Tax Savings
($601) ………. Equity Hidden in Payment
$17 ………….. Lost Income to Down Payment
$121 ………….. Maintenance and Replacement Reserves
============================================
$1,903 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,539 ………… Furnishing and Move In at 1% + $1,500
$5,539 ………… Closing Costs at 1% + $1,500
$3,898 ………… Interest Points
$14,137 ………… Down Payment
============================================
$29,112 ………. Total Cash Costs
$29,100 ………. Emergency Cash Reserves
============================================
$58,212 ………. Total Savings Needed
——————————————————————————————————————————————-
We're sorry, but we couldn't find MLS # S702703 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
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$399,900 5661 CAMP St |
0.24 miles 3 bd / 1.75 ba 1,454 Sq. Ft. |
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$486,000 5621 LIME Ave |
0.3 miles 3 bd / 1.75 ba 1,595 Sq. Ft. |
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$399,900 8832 CYPRESS Ave |
0.46 miles 3 bd / 1.75 ba 1,448 Sq. Ft. |
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$399,000 5899 LOS SANTOS Way |
0.71 miles 3 bd / 1.75 ba 1,700 Sq. Ft. |
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$354,900 5884 LOS ENCINOS St |
0.77 miles 3 bd / 1.75 ba 1,437 Sq. Ft. |
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$417,700 5892 LOS AMIGOS St |
0.87 miles 4 bd / 1.75 ba 1,370 Sq. Ft. |
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$430,000 5766 LOS ANGELES Way |
0.97 miles 3 bd / 2.5 ba 1,708 Sq. Ft. |
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$429,900 6341 ROSEMARY Dr |
0.99 miles 3 bd / 1.75 ba 1,257 Sq. Ft. |
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$484,900 9772 JUANITA St |
1 miles 4 bd / 2 ba 1,730 Sq. Ft. |
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$325,000 4785 LARWIN Ave |
1.07 miles 4 bd / 2.25 ba 1,562 Sq. Ft. |
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28 Responses to “Detailed review of the new changes to California foreclosure law”
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“Why do they want to pay $523,000 for their $250,000 house? That’s what they would be doing if they managed to get a loan modification. If they walk from this house and repurchase in a few years, they could buy a similar house for about $250,000. They are paying a lot of extra money for their attachment to this house.”
So insensitive of you. That condo is their dream home and one of a kind!
I have to wonder if someone explained to them that they are paying $523,000 for a $250,000 house if they would still do it. I don’t understand why anyone who is 50% underwater would keep paying. They won’t have equity again in their lifetimes.
The only reason any reasonable person would be trying to keep this home, is the hope of a serious principal reduction.
The only reason to keep paying for a mortgage that is 50% underwater is if you believe the future and wellness of the mortgage bond holder is more important than you or your family’s. Such nice suckers….I mean people.
That’s not true. If something happens to crank the market value of this house up to $800,000, they’d make out like bandits. And that, presumably, is what they expect.
You can certainly mock that expectation — I would, too. But it doesn’t violate the laws of physics. It is only very unlikely, given our limited present knowledge of the future. It isn’t impossible.
“I expect to see lenders increase their foreclosure filings in 2012 in response to the January 1, 2013 deadline, but so much of what the banks have done has defied logic, that anything could happen.”
That’s so true, nothing follows logic since 2008. I’ve come to expect the unexpected.
California Legislature Approves Homeowners’ Rights Bills
The California Homeowner Bill of Rights is one step closer to becoming law as the Legislature sends some of its key provisions to the governor, state attorney general Kamala Harris announced Monday.
AB 278 and SB 900 provide protection for borrowers and struggling homeowners, including a restriction of dual-track foreclosures (in which a lender forecloses on a borrower despite being in discussions to try and save the home). They also guarantee struggling homeowners a single point of contact at their lender with knowledge of their loan and direct access to decision makers. In addition, the bills impose civil penalties for the practice of robosigning.
The bills passed 53-25 in the Assembly and 25-13 in the Senate. They will be sent to the desk of governor Jerry Brown for consideration.
“The package approved by the Legislature today is a major victory for California’s consumers,” said Assembly Speaker John A. Pérez. “We impose tough new regulations on banks and lenders to stop the abusive practices we’ve seen since the collapse of the housing market, and this package will bring relief to hundreds of thousands of California homeowners.”
The Homeowner Bill of Rights contains four other bills outside of the conference committee process. The various bills contain measures to enhance law enforcement responses to mortgage and foreclosure-related crime, to help communities fight neighborhood blight, and to provide protections for tenants in foreclosed homes.
The California Reinvestment Coalition (CRC), a supporter of the Homeowner Bill of Rights, celebrated Monday’s news.
“After three years of legislative battles, it’s about time that families at risk of foreclosure no longer have to worry about losing their homes while they are seeking a loan modification from a bank,” said Paul Ainger, member of CRC’s board of directors. “The call of California homeowners and communities has finally been answered by our legislature.”
Bernanke is a hero, and happy days are here again, right? Not.
Home Sales Show Bernanke’s Low Rates Are Gaining Traction
For Mike and Kathryn Fry, the time was right to take advantage of the Federal Reserve’s low interest rates to buy a home.
While the couple had considered buying in recent years, they never pulled the trigger. That changed in April, when they decided on a three-bedroom, two-bathroom colonial home in Arlington, Virginia, and took out a 30-year fixed-rate mortgage at 3.75 percent.
“It was a combination of our personal finances being ready and rates being great,” said Mike Fry, 28, who works for a financial-services company. “The market seemed good, and we found a house in our price range.”
Their experience shows how Fed Chairman Ben S. Bernanke’s low interest-rate policy may finally be starting to pull housing out of a six-year tailspin, providing a boost to the broader economy. Home buyers are increasingly taking advantage of record-low borrowing costs as barriers such as falling prices and an overhang of foreclosures start to dissipate.
“The Fed is very much focused on the housing market because that’s typically the best way to channel low interest rates — through home sales and refinancing,” said Michelle Meyer, senior U.S. economist at Bank of America Corp. in New York. “We are seeing some signs that the credit channel is unclogging modestly, and the Fed is going to be quite pleased with that.”
Home Sales
Sales of existing homes rose 9.6 percent in May from a year earlier, with 4.6 million homes changing hands at a seasonally adjusted annual rate, according to a June 21 report from the National Association of Realtors. A 15 percent jump in an index of contracts to buy existing homes that same month suggests the market will continue to improve.
The U.S. offers a contrast to the U.K., where the housing market is slowing amid concern over the economic outlook. Reports today showed U.K. mortgage approvals fell in May and construction shrank at the fastest rate in 2 1/2 years in June.
Stocks in the U.S. rose today after a report showing orders placed with American factories rose in May for the first time in three months, easing concern that manufacturing is faltering. The Standard & Poor’s 500 Index gained 0.6 percent to 1,374.02 at 2:57 p.m. in New York.
Fewer banks are tightening their underwriting standards, and more homeowners are taking advantage of low rates to refinance their mortgages. Companies such as Discover Financial Services are jumping into the mortgage-lending business as the industry revives.
Given the business model for housing is based-on fraud, criminal pillage, preserving failure, $-dillution and debt/tax servitude, it’s quite reasonable to conclude that prospective buyers who’re persuaded to ignore realities are merely sheep being led back to the slaughterhouse.
Alex, I’ll take el ORACLE’s sagging credibility for $500:
> el O says:
>
> September 9, 2011 at 5:19 pm
>
> Let’s play jeopardy
>
> and the answer is: burnt toast
>
> el O says:
>
> September 9, 2011 at 6:05 pm
>
> what is the death grip
El O is right about the US and its citizens being at the peak of a credit expansion with no growth available, but what do you do knowing that? Avoid over-paying for leveraged assets? There’s not much you can do. We’re all riding our Japanese wave together.
The main reason for MelloRuse’s ongoing attempts to ‘throw me under the bus’ FAIL; he is unable to refute the basis of my post content.
As to the main reason for his 3+ year long recovery thesis FAIL; he believes newly printed money is worth the same as existing money stock.
You’ve pointed out recently that I believe in imminent Fed-induced inflation but now you say I don’t understand the reduced value of a newly printed dollar. Are you for real? How do you reconcile that?
Let’s face it bro… Most of your positions over the past year have not been defensible, hence your conflicting statements and double shuffles when I’ve called you out on them.
btw, regarding my ”newly printed money” comment, I was not suggesting you didn’t understand the $value aspects of inflation… of course you do.
My comment was meant to depict a self-delusion element because you chase nominal #’s.
Savvy?
Oh… I get it.. distraction equates to ”called me out” in your world. LMAO!
Stay thirsty my friend
“The Fed is very much focused on the housing market because that’s typically the best way to channel low interest rates — through home sales and refinancing,” said Michelle Meyer, senior U.S. economist at Bank of America Corp. in New York. “We are seeing some signs that the credit channel is unclogging modestly, and the Fed is going to be quite pleased with that.”
So, let me get this straight. The low interest rates, the FHA program, and privatization of Freddie and Fannie has nothing to do with back-door bank bailout.
The U.S. average weekly wage decreased over the year by 1.7 percent to $955 in the fourth quarter of 2011. This is one of only five declines in the history of the series which dates back to 1978.
*Ten Largest U.S. Counties
All of the 10 largest counties experienced over-the-year percentage increases in employment in December 2011.
Harris Co, Texas, experienced the largest gain in employment
*Orange Co, Calif., had the smallest percent increase in employment among the 10 largest counties. Avg weekly wage Q4 2011: $1080; down -3.2% from Q4 2010.
http://www.bls.gov/news.release/pdf/cewqtr.pdf
Avg weekly wage Madison Co, Alabama: $1077; home average sold price: $163k
Avg weekly wage Orange Co, California: $1080; home average sold price: $430k. OC weekly wages ONLY $3 more than in Alabama.
Clearly, current OC home sold prices are not supported by incomes. Expect default rates to rise in the coming months and years.
Pardon me, but that’s an average income of $56,000 or $112,000 for a dual earner household, correct? Under almost any down payment scenario, that puts the average couple in a position to purchase a median priced home with PITI payments below 28% of their income.
No offense amigo, but I think you’re a little out of touch.
….yet June ’12 sales volume; 3288 units (up only 1.4% YoY) barely beats easy comps from last year, even despite 30yr money @85bsp lower YoY.
week ending 7/1/2011 4.51
week ending 6/29/12 3.66
Let’s face-it muchacho, OC’s housing market is a farce.
The medium household income in Irvine is about $120000. Higher on the coastal OC and much lower in-land.
“Avg weekly wage Madison Co, Alabama: $1077; home average sold price: $163k
Avg weekly wage Orange Co, California: $1080; home average sold price: $430k. OC weekly wages ONLY $3 more than in Alabama.”
That’s an amazing statistic. There must be a tremendous variance between the average and the amount people make who are more than average. It’s the only way the disparity in house prices can be explained, besides artificial inflation of asset values in OC. There must be a large number of minimum wage workers bringing down the income averages.
avg weekly wage:
Sacramento Co, Calif: $1042; home average sold price: 168k
OC weekly wages only $38 more than in Sacramento Co.
These foreclosure laws mean this: more than ever, possessors trump money owners by more and more. In some cities, evicting a rent non payer is a monumental, frustrating, impossible task, and they can wreck the place with utter impunity. Your rights as Lessor are deemed unworthy of the dignity of the law. Result: not enough rentals, oh look…there aren’t enough rentals right now, rents are going up, driving people back to being bubbleworthy homeowners if they have credit, leaving as renters especially those with impaired credit, how nice. The cycle repeats. A Broke middle class and school debt, non-marriage, isn’t helping. Now, here’s how Wall Street’s clueless thinks all the middle class should be saving, let me know when you meet TWO people who have met these objectives, not of the 1% (from Schwab):
If you are starting to save in your 30s
•Save between 15% and 25% of your income for retirement.
•Track your spending to find ways of cutting back.
•Put as much of any bonuses as possible into retirement savings.
•Continue to fund your retirement accounts even while saving for your children’s college expenses and paying off your mortgage.
If you are starting to save in your early 40s
•Save between 25% and 35% of your income for retirement.
•Max out your 401(k), SEP-IRA or other business retirement plan.
•Contribute to a Traditional IRA or Roth IRA, if eligible, and consider a deferred variable annuity.
If you are starting to save in your mid-40s and older
•Save more than 35% of your income for retirement
I imagine that not many people are doing what you outlined. There wouldn’t be any money left over to enjoy life, and people are far too concerned with living for today.
“The Homeowner Bill of Rights will prevent banks from throwing Californians out of their homes while they are trying, in good faith, to renegotiate their mortgages. ”
What about those that are trying in bad faith? Will the Bill prevent FC on those negotiating in bad faith for free housing? Both sides are using bad faith to slow down the FC process – one to control inventory and the other for free housing. What happened to all the HELOC money?
With all the tricks by the banks and squatters, I don’t see dramatic action until after the elections.
IndyLew, If I were to do it over, I would not have put any money into a regular IRA at a young age. A Roth IRA and Roth 401 would have been much better to pay a low tax rate up front instead of pay a higher tax rate on the back end. The 401k are good when there’s a match.
I’m sorry to say this, but the Nelson St. house is a dump.
“Dumps” in California still cost $400,000. Crazy.
The reason a “dump” still costs 400k in SoCal is because there is a huge disconnect between price-(something you charge people for) and value-(what something is worth).
Clearly, ‘buyer beware’ fully applies.