New CA Foreclosure Law Endorses Mortgage Modifications

Posted on July 10th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

Gov Schwartzenegger signed into law today Senate Bill 1137, which aims to prevent foreclosures by forcing banks to offer home owners mortgage modifications . It also forces owners of homes taken in foreclosure or purchased out of foreclosure to keep them tidy or cities can impose a $1000 PER DAY fine. Landscapers in CA are in fat city!

Banks took back 26k homes last month in CA. In the past few months 98% of the homes purchased in foreclosure were bought back by the foreclosing bank, which goes to show how bad the market is. I wrote about it in last month’s Foreclosure Report.

Banks are also supposed to have the homes they own insured and paid current on property taxes, which should have been included in the law. They also must pay home owner association dues in many cases.

The law, which takes effect immediately prohibits lenders from filing a Notice-of-Default until 30-days after contacting the borrower or making legitimate attempts to do so regarding a mortgage modification. I recently ran two stories on mortgage modifications  and did a video version, which has good information for you on the subject. The law also requires that the tenants renting a home in foreclosure are given 60-days written notice to vacate a property once it is foreclosed upon.

I am a big mortgage modification advocate and feel that encouraging mortgage modifications is a great thing. Mortgage modifications are the market working for a change. Hey, I am not one for Gov’t interference but Gov’t interference forcing banks to encourage mortgage modifications is a different story.

If banks do not start to modify mortgages, laws will be passed to make them happen; laws like the absolutely horrible $300 billion subprime bailout that is very close to passing this very moment. This bailout encourages mortgage modification, but limits the bank’s downside and makes the Gov’t an equity stake holder in your home! It is insanity. This means you will get your modification but will split all upside appreciation 50/50 with the Gov’t. The worst part is the ‘subprime implosion’ has been by and large been worked out by the markets, so this is far too much, far too late.

If you are in trouble right now, are in a negative equity position, have an exotic loan set to blow up in a year etc, there is a rare opportunity right now to get a mortgage modification, as the banks are being very generous and you do not have to split your upside with the Gov’t.

I have always said to ‘fix’ the housing problem you must a) bring back all the exotic loan programs b) give everyone a 100% raise c) give everyone 20% cash down to buy a home d) cut home values in bubble states like CA by 50% or  e) have all the banks get together and reduce every one’s principal balance by 20-30% across the board through modification.

Remember, negative equity is now the leading cause of loan default, subprime defaults have plateaued and Prime and Alt-A defaults are now picking up steam primarily due to negative equity. Subprime defaults were primarily caused primarily by rate adjustments after the first two to three years. The ‘Prime and Alt-A implosion’ kicking off now will dwarf the ‘subprime implosion’ and there are ways of softening the blow. I feel mortgage modifications that reduce the principal balance, waive second mortgages or reduce rates significantly, would do much to keep better borrowers in their homes.

Let the banks, who made the loans in the first place, work with borrowers who are in trouble to modify the loans and keep the customers for life paying their newly modified mortgage, which they can afford. It is a win/win.

I encourage you to read my two recent articles on mortgage modifications and watch my recent video. The links are below. They should tell you everything you need to know about the topic. You never know, you may qualify. -Best Mr Mortgage

MR MORTGAGE ON MORTGAGE MODIFICATIONS:

Mr Mortgage: Mortgage Modifications Part 2 – Being Forward Thinking

Mr Mortgage on Mortgage Modifications: You May Qualify!

YouTube Version – Mr Mortgage on Mortgage Modifications

28 Responses to “New CA Foreclosure Law Endorses Mortgage Modifications”

  1. If you raise the cost of holding foreclosed property, will that not make the bank see a higher cost and in fact raise rates for CA loans? I understand the responsibility of the holder of the property but is not 1,000 per day excessive? Should not a penalty have been included for non payment of association dues? That seems to have slipped through.

    Whenever anyone up’s the ante on risk, it gets factored in somewhere.

  2. All this does is prolong the bottom. It’s a nice gesture but most of the borrowers will be in the same boat a year after the loan mod. We need to take our licks like big boys and girls and move on.

  3. I am very familiar with all of the technicalities of California’s trustee sale foreclosure law. It looks like the California real estate lawyers put in as much text as they could to make these new procedures clear.

    As to the $1000 per day fine, it is important to remember that any fine levied by a city or county in California is always appealable to California’s three tiered state court system, so I expect lenders hit with $1000 per day fines will appeal them. At $30,000 per month in fines, that buys a lot of lawyer time. The fine provision could have been worse, in that it could have provided that the fine is a senior lien on the foreclosed property,like a tax lien and it could have provided for prevailing party’s attorneys fees in the event of litigation over the fine, but the law didn’t. And, of course, the law leaves the cities and counties discretion to make the fines less than $1000 per day. My experience with most California cities and counties is that their decision makers never really want to upset organizations with lots of money. So while you might see Berkley or Santa Monica imposing such fines, I will be very surprised if the Republican controlled governments in the areas hard hit by foreclosures do anything with the fine provisions.

  4. These states can legislate all they want. However, most of these loans are held in some sort of structured pool with legal and tax consequences that can only be addressed at the federal level.

  5. Yes, the Californian government is just going to screw things up even more by getting into it. Instead of letting the market place work things out they are just going to make it 10x worse.

  6. In U.S.S.R we gave each married comrad free 2 bedroom apartment, 2 kids and you get 3 bedroom, party boss you get nice home by Moscow river, single? You get one ticket to army to fight imperialist pigs!

    I live U.S.A 12 years now and notice that U.S.A is one S short of U.S.S.R.

    California is home in the motherland already.

  7. so true.quite why banks are allowed to buy up your bad debt on the cheap but you can’t pick it up at 20 pence in the pound I don’t know.would be nice to see it our side of the pond.

    btw do you have a link for an article that supports the negative equity is the primary cause of default?would be interesting to read some research.

    Tahnks in advance if you can help

  8. Mr. M –

    I spoke with the Chief Admin to the Office of the President of Countrywide two days ago and she stated, in no way has Countrywide ever, or will they ever, discount the interest or reduce the principle on a mortage when the borrower has the ability to pay on the current loan. Even when someone has $200k in negative equity as in our case.

    She also said that the note was held by Fannie Mae, she would give me contact info to speak with them directly, but that they would refer me back to Countrywide because they are the servicer.

    She also said, obtaining a third party company or attorney to negotiate such a modification would make no difference on this policy.

    I asked for it all in writing.

  9. So those of us who bought a home with intelligence (knowing how much we could reasonably afford while not working to death just to barely afford a home) are getting the SHAFT!!!! WTF!!

    The fact that people don’t have enough common sense to realize they can’t afford a house which takes 80%-90% of their take home pay, get the breaks. Where’s my 20% reduction on my principle????? Fair is fair, right? I know it’s not and that’s what just pisses me off!

    Let’s continue to bail out the idiots in this country. Let’s just continue to bail out the idiots who can’t take responsibility for managing their finances.

    While I agree that some lenders or brokers didn’t disclose how the ARM resets would work, or how taking an interest only loan and making the smallest payments possible (the amount shown giving people the impression they could buy that big, unaffordable home) – it still doesn’t take responsibility of the buyer.

    We’re in a HUGE MESS because of idiocracy, lack of people taking responsibility, greed and what’s in it for me despite screwing the next guy, a sleeping government who loves to wake up at the last minute excited about spending more money we don’t have,…….. Forget-a-bout-it!!! I’m done ranting. I’ll just go back to my coffee and short a few more of these companies lying about not needing more capital because they leveraged themselves at 30:1 or greater. In fact, I think I’ll short the GSEs (Fannie and Freddie) a little more. When the government comes to take our money to flip the friggin’ bill for placing $1.2 TRILLION DOLLARS in illiquid, losing value, “loans” on the taxpayers books……. I’ll just pay them with money they helped me make. I better make it now incase Obama wins and RAISES capital gains taxes as he’s promised. Sure….. 38% or 15% isn’t enough already? Let me just cough up a little more profit so we can send out more checks so people can buy more S#@t they don’t need!!!!

    Hope everyone has a great day!

  10. Hey Wok – she probably also said ‘all their loans were investment grade’ 6 months ago. Countrywide is one of the easiest I have been told. They are the #1 forecloser in the nation by a good clip.

  11. Countrywide is #1 in Foreclosures..sure. But what about modifications? Where’s the beef? The only mod they have offered was to lump our missed payments into a third loan and add $43 to our payments. Even after I said no on the phone they still sent me a certified package to sign and agree to it. I also don’t like the idea that I would have to involve a third party to facilitate a true modification, (even if they could) simply because they “know” the system and the bank will work with them. My bank, or Fannie Mae can come to the table with me or not. My guess is they won’t because historically their policies are illogical. Who needs a thrid party taking a cut?

    I also just got off the phone with Homecomings/GMAC regarding buying out their second. The property is currently listed below the first, and is really valued at about $130K below the first. I have been unable to get any offers on the listing. Back in March I was offering them $10K for a $58K second, and have been slowly reducing my offer as the value has declined and each time I have had to endure talking to an idiot from their company. After she told me I don’t know how the system works, she went on to threaten that Countrywide would end up foreclosing on me. So I aksed her how much that would leave Homecomings with…she mumbled something..and then again said I didn’t know how things worked. I then asked her to make a note on my account that my offer was reduced to $2500.

  12. Wok – perhaps you do not have the relationship or know-how to get it done. Do not take that as an insult. I would not do a mid on myself and I consider myself to be fairly knowledgeable on this topic. It is not about knowing what to ask for it is about making a case for borrower AND lender, presentation of the case and knowing the banks thresholds.

    Are you in the mortgage biz Wok?

  13. I’m not in the mortgage biz, but the component of the equation I always stress is what is most beneficial for the bank. My guess is that any offer for a short sale would be well below the threshold anyway. The bank will never give me any guidance on the threshold, so hence my asking price is still $130K above what I think it would sell for, thus no offers. I could drop it down to value based off of recent sales, but are the banks going to consider a $100K offer on $300K worth of loans?? Why not accept $150K from me, and move on??

    My suggestion to them, as someone who could pay (But isn’t going to accept $200K neg equity) is that they should come to the table because we would agree to something greater than what they will get in a shortsale. We would accept some neg equity, so long as the end result is a monthly cost that is more in line with 120-150% of renting. Trust me, that is far above what they could dream of getting in a short sale.

    So what other in depth knowledge will assist if we can’t even break through that obvious barrier of reasoning? Mortgage expert or not, this isn’t rocket science it’s math. Virtually every week the bank delays coming to the table, the property value decreases, and that only leaves them with a weaker hand to deal with.

    The reality is, at this point I do hold all the cards. I have already destroyed my credit, however at this rate, by the time they actually decide to foreclose, if they ever do, I’ll have enough cash on hand from not making payments to turn around and buy the exact same property, or one similar to it for cash.

    The banks should be hunting down people like me to cut a deal with to mitigate the numbers they will have to foreclose on. They shouldn’t be flatly rejecting my suggestions, and/or expecting me to get a third party who “knows” the system.

    I know, I know, some will say it is that attitude that is ruining the country, but after all the bank CEOs, politicians and speculators have raped the economy, I don’t intend to be the last idiot holding the bag…self preservation prevails at this point.

  14. Mr M,

    What about the knuckleheaded borrowers who used their home as a cash-out ATM annually over the past eight years during the run-up? Surely these folks shouldn’t get mods. They should, at the least, have to sell the SUV’s and boats they purchased using equity. What about the moron (and moronic bank) that tapped HELOC’s behind neg-am’s?

    Realize that I am being silly here, but realize at the same time that a set of parameters needs to come with these mods that is at least close to fair for everyone. Actually, that would be impossible due to the million or so that already lost homes to foreclosure…those folks got squat. So I guess my question is, what it fair here? Should the attitude be take whatever you can get?

  15. And therein lies the rub: the bailout only really helps those who weren’t being prudent – and ignores everyone else. Its the ‘spill coffee on yourself and sue for $29 million’ thing I’ve been talking about.

    Which of course means, NOTHING will get done..

    ugh.

  16. What if they don’t want to be “saved” and prefer to walk anyway. I have a feeling that may well be often the case.

  17. there are companies out there to help you walk away without liability as well. We have an advertiser thoroughly checked out that does a good job. http://www.youwalkaway.com

  18. Dave B.,

    For what its worth the HELOCS and other junior mortgages out there are toast. The lenders will take a bath on these. See MortgageMan’s previous posts.

  19. Paulson just came out and said Fannie and Freddie are adequately capitalized..

    $25 billion market cap covering $6T in loans? Meanwhile everyone else on the street is still bleeding?

    that’s adequate? what a joke.

  20. All the moaning and groaning, finger-pointing and ballyhooing about greedy and irresponsible homeowners who got themselves in a financial mess, IGNORE one critical fact staring US in the face:

    The ‘Death by 1000 Cuts’ monetary policy was implemented by Greenspan & Bernanke (the Demonic Duo) DELIBERATELY to CRASH America! Why is nobody going after those (Zionist) criminals? For the same reason that nobody is going after similar Zionist criminals who prodded Bush into the ‘War on Terror’ (although Bush was an enthusiastic war-monger in his own right!).

    All the present hand-wringing and MM (Mortgage Mods) laws will NOT solve the UNSOLVABLE problem – it was meant to be UNSOLVABLE. IT IS UNSOLVABLE! The Depression is inevitable – read Mike Morgan’s blog. The entire financial system is now KAPUTTT! (by Design).

    What will be the inevitable ENDGAME for the Zionists?

    “They shall have their reward” – in this life, as well as the next! What’s the earthly reward?

    MELTING! (click on my name for ALL the gory details and pieces of The Puzzle)

  21. IS THE 60 DAY NOTICE FOR RENTERS RETRO?

  22. I’ve been following the housing bubble and subsequent economic collapse. Even though I feel I understand the complex causes of the bubble, I’m still left trying to understand how we could have prevented it. It may seem simple to some, but because so many parties were involved, it really is difficult to draw the line at where somebody should have stepped in.

    At the same time, it is interesting to see the blame pointed at the national level: at huge national companies like mortgage lender Countrywide, Wall Street investment banks, and national government (FED, FHA, etc.) and associations (NAR, NAHB, MBA).

    Ironically, the real estate mantra is “all real estate is local”.

    More seriously, can we expect the Fed to have the pulse of every community? Can we expect the Fed to speak to certian communities?

    I guess my point is we have representative government. I think it is fair to expect each representative of the House to have the pulse of his/her district and the local social and economic issues faced.

    So it still not fair to blame any one party, but I believe our leaders did not serve us by remaining silent or ignorant of the problem as it grew.

    Perhaps in the future the next time I see something wrong (like a house suddenly selling for twice what it was worth three prior). I’ll urge my congressman to do something about it. If I had known the stupid actions of others were going to come back and bite me and my children (who had no participation in the matter), I’m sure I would have.

  23. EternalAnalyst:

    Yours seems to be an analytical or ‘reasoned’ approach (if retrospective) to our current problems in focus – but let’s look a little wider and then deeper, with a macroscopic lens first and then a microscopic lens and analysis. If we only focus on the trees, we are likely to miss the forest – and it’s a VERY threatening forest, indeed – in which America (and the world) now finds itself. Mr. Mortgage’s mortgage mess is merely the tip of the iceberg of a HUGE problem. Most of the comments here only examine one small piece of The Puzzle.

    Our system (Elections, Congress, the Media, etc.) has been ‘gamed’ by some unscrupulous ‘people’. America has been ‘dumbed down’ intentionally for many years. We need a new ‘frame of reference’ or paradigm to fully understand the nature of the (diabolical) forces at work. Above all, you need spiritual understanding – which must precede reason.

    There will not be a ‘next time’. Take the time to study my website and to SEE! all the pieces of The Puzzle which have been assembled over many years to form the Big Picture – of our past, present and future. We need to think and step ‘out of the box’ of our everyday existence and way of thinking to discover how all the dots are connected to form a deadly web. The amazing discovery is that there is ONE way out of the deadly web! 🙂

    Teach your children well – while there is still Time.

  24. I vote for option D: Let values drop by 50%. If that’s what they are worth then so be it. Anyone who bought into or contributed to the bubble should not get any breaks!

    And I agree the Government Bailout is a crock. The government should not be in the business of propping up house prices.

    The solution is so simple. Let the chips fall where they may! Sometimes pain is needed but people don’t want any today; just push it off till tomorrow.

    Thanks,

    Phil

  25. “The government should not be in the business of propping up house prices.”

    ….especially since they are responsible for the housing bubble! Also, ‘The government’ is the taxpayers, not some abstract entity!!!

    Greenspan & Bernanke deserve to be feeling extreme pain – moreso than the duped and/or greedy homeowners who lost their houses to foreclosure (or will).

  26. I also choose option D.

    Mr M has been exhorting people to seek a mod now before the gov’t arranges to split half of any gain. Obviously nobody wants to split any $$ with anybody but, really, think about the deal these homedebtors who made poor investment decisions are already getting:

    Say they bought a $500,000 house no money down and it’s now worth 30% less, or $350,000. The bailout will reduce their principal to 85% of that. So now they only owe $297,500.

    They are already ahead $202,500, not to mention the interest on that, which is not a trivial sum. If they immediately sell for $350,000, which as far as I can tell they are perfectly welcome to do, they have no gain, so once they pay off the $297,500 mortgage, they have a $52,500 profit for their troubles. Yep, they made more than 10% on what had been a really stupid investment. Great country, America!

    Here’s another concern of mine: How long are we going to continue bailing out people? Obviously anyone who bought in the last 2-3 years was nothing but a knife-catcher, thinking prices couldn’t *possibly* fall more than 5%-10%. Why should we bail out people who bought knowing prices were falling? Why should we bail out people who bought well after terms like “ARM” and “negative amortization” entered the common lexicon?

  27. A couple of people have commented that the $1000/day is excessive in terms of a fine levied against a bank who does not maintain a foreclosed property. I only WISH we had such a law in Arizona. There are whole neighborhoods here that have dead yards, drained and cracking in the sun pools, and broken windows on every third or fourth house. While some neighbors have mowed lawns, keeping the yard watered in 110 degree heat cannot be done without the water being turned on and the sprinkler system running. Of course the banks turn off ALL utilities and leave the foreclosed homes as a blight upon the area – which of course further depresses the value of everyone’s home in the area – foreclosed upon or not! As a practical matter, the fine must be high enough to make a bank think twice about ignoring the law. And high enough that it would soon amount to more than even the cost of maintaing the lawns and exterior on a large estate! (There are more than a few mansions in Beverly Hills and Scottsdale with rotting yards and a dead zone around them, too!)

    Personally, I think the city should just send in a pro maintenance crew, keep the property up and bill the bank for their services which would become a lien upon the property taking priority over anything other than property taxes! Speaking of same – the banks are playing hell with various communities in Arizona by NOT paying the tax bill on their foreclosed property. They’re better that the property will sell in two years or less before the tax lien certificates can force a sale. But they’d better keep their calendar accurately. One mistake could cost them the entire property -with their former mortgage wiped off – and someone could pick up the house free and clear for a few years worth of back taxes. It happens all the time! Seeing the banks get screwed after what they’ve done to cause/contribute to this mess actually makes me feel better. I am furious that they (banks and lenders) would try to get off scott free and deny their role and their responsibility in sub-prime, A and alt-A meltdown.

  28. I have a questions about the coverage of the law. Would owner-occupied residential mortgages include those that are held as an abundance of collateral in commercial lending??

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