Foreclosures are soaring in California with 473,652 foreclosed homes and thousands more nearing foreclosure. California continues to have the highest number of foreclosures regardless of the government intervention loan modification programs.
The Federal Government under Obama’s direction implemented a Making Homes Affordable Campaign, which is designed to help homeowners stay in their homes by lowering monthly payments either by a reduction in interest rates or an extension on the length of the loan. The overall goal of the program is to stabilize home prices which would in-turn enable the economy to recover. Unfortunately, the program has had minimal impact especially in the hardest hit states of California, Nevada, Arizona and Florida.
According to Irvine, California’s Realty Trac, Inc.’s CEO James J. Saccacio, “In spite of the industry wide moratorium earlier this year, along with local, state and national legislative action and increased levels of loan modification activity, foreclosure activity continues to increase to record levels.” Riverside County with the highest foreclosures has 6% of all households in some stage of foreclosure.
There appears to be multiple issues impeding the plan. Included are:
- Consumers are confused and don’t fully understand the program. Many think that in order to qualify, they have to be behind in their payments.
- Lenders are overwhelmed with the number of requests and do not have the staff to adequately handle the volume.
- Declining home prices and equity make it impossible for homes to qualify for the loan modifications.
- Rising interest rates have hindered some of the loans.
- Unemployed homeowners with limited or no monthly income cannot qualify.
For these types of situations, foreclosure may be the only realistic choice.
Recently there has been an increase of people who can afford their house payments but due to declining equity have elected to just walk away from their homes. A study by the University of Chicago and Northwestern University found that about 26% of foreclosures were calculated economic decisions due to negative equity positions. In Salinas, California people who bought their home near the peak of the market can buy the exact same house across the street or next-door for $214,000 less than what they paid for theirs.
Another issue is the number of fraudulent counselors or scammers that are rapidly growing. They charge large sums of money from unsuspecting victims under the guise of ‘guaranteeing’ a loan modification. The California Department of Real Estate has filed Desist and Refrain Orders to over 750 various firms and individuals. Homeowners are in need of assistance can go to www.hopenow.com.
July 28, 2009 the Treasury is planning to meet with 25 of the largest mortgage service companies to examine year-to-date results and determine ways to improve results and efforts.
New programs and incentives are being considered by the Obama administration. July 1, 2009 the administration decreased the home loan to value from 95% to 75% with the hope that more homeowners would qualify. In addition, they are looking at a program to help the unemployed by potentially giving them more time and financial leeway to qualify for a new loan or loan modification. With 11.2% unemployment rate, this program would have an impact on California.
There have also been talks about allowing people to stay in their homes and rent from the lender – basically turning lenders into landlords. The initial plan under discussion is to allow the government to make the house payments through housing stipends as unemployment benefits.
Under the previous program, 50% of the homeowners that renegotiated their mortgage feel into foreclosure within 6 months. What remains to be seen with these new efforts is will Californians and other homeowners stay in their negative equity homes.
To learn more about the Loan Modification program or to see if your loan qualifies, go to www.makinghomesaffordable.gov.
Written by Andee Allen. She is freelance writer, Strategic Media Coach/Consultant, Real Estate Investor, and California Realtor (License #01854926). You are welcome to contact Andee at andeeallen@gmail.com or on her website at www.strategicmediacoach.com.
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