No Relief from Foreclosures on the Horizon

Notices of Default filed in Modesto in the past 12 months.

Notices of defaults have spiked in the Central Valley. The chart to the right is only for Modesto but it represents a similar trend throughout the worst hit counties in the Central Valley. The increase is partly due to the end of the year-long “freeze” in foreclosures because of the “robo-signer” scandal. As you may recall, in their rush to foreclose defaulted loans, lenders were filing false foreclosure notices and fraudulent legal actions. In the immediate aftermath, some lenders stopped foreclosing but the pace soon picked up when lenders realized that Washington wasn’t going to do anything about it. Since then, the only sanction has been lawsuits by the Attorney Generals of several States against the lenders. Settlement negotiations have been going on for six months with no resolution in sight since lenders are demanding immunity from future prosecution.

Throughout all of this, despite all the hype, there remains no effective help for upside down homeowners who are frustrated and angry at unfulfilled promises such as the HAMP Program which remains mostly ineffective at reducing loan costs to overwhelmed debtors. Instead, lenders seem to prefer foreclosure even if that results in less of a money recovery for their investors. As reported on, Notice of Default filings in California are up 69.5%. In Sacramento, August NOD’s were up 85% over July. Much of this increase is Bank of America. Market watcher reported that BofA foreclosure filings in California increased 200% between July and August!

Some have voiced their concern with BofA’s survivability as they continue to deal with the incredible losses from their Countrywide purchase. In July BofA reported an $8 billion 2nd quarter loss and there’s billions more of losses yet to go. A BofA spokesman stated that even this increase may not be enough. BofA appears committed to forcing as much bad debt off their books as they can as quickly as they can. Meanwhile, lawsuits continue to mount. Insurance giant, AIG, filed a $10 billion lawsuit against BofA in early September; and FNMA is reportedly about to file a $20 billion plus lawsuita against BofA and others.

What all of this means is that we’re in for more troubling financial times as lenders try to rebound from the deep recession caused by the collapse of the real estate bubble. Added to this is continued economic instability in California, nationally, and in fact world-wide all of which is causing buyers and investors to question whether now is the time to buy. California Association of Realtors (CAR) is predicting that sales will remain flat through 2011 and that property prices will fall 4%. They further project a small, less than 2%, price growth in 2012. CAR’s chief economist, Leslie Appleton-Young, stated: “the best decription of what can be expected next year is the market will be bouncing along the bottom.” … “One of the biggest uncertainties in today’s market is what are the negative equity homeowners going to do going forward and how big a percentage will end up in the foreclosure process”.

So the bottom line is insecurity on the economy and continued efforts by lenders to clear defaulted loans off their books. This means more short sales, more foreclosures and more REO properties. For some, this will spell an opportunity to acquire good properties at a low price with cheap loans. For others, it will be wait and see how low the markets go. None of this is good news for upside down owners hoping to save their homes. Looking forward to a 2012 Presidential election years, it is not at all likely that any further relief for homeowners can be expected before 2013.

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