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