The California Foreclosure Prevention Act went into law on June 15, imposing a partial, temporary, 90-day moratorium on home foreclosures in California. The bill was passed in February, but just took effect this week. The law is intended to encourage lenders to provide mortgage workouts to financially distressed home owners, and was also intended to stem the tide of California home foreclosures. The law sounds good in name, but it is unlikely to have much impact. And in view of the current state of the market for San Diego homes, the timing of the effort is illogical and misguided.
This new foreclosure moratorium does not prevent foreclosures. At best, it will give some home owners up to 90 days to work out a loan modification with their mortgage lender. However, lenders are exempt from the temporary moratorium if they have a comprehensive loan modification program in place to help borrowers restructure their mortgage loans with more affordable monthly payments. This author has been unable to identify any lenders that have not already implemented a comprehensive loan modification program. So in reality, this foreclosure moratorium is foreclosure prevention in name only.
There have been nearly 400,000 home foreclosures in California since 2007. The hardest-hit areas have been counties in California’s inland empire. San Diego has had its share, particularly the lowest-priced neighborhoods that are dominated by entry-level homes and the lowest household income demographics. New home communities like Chula Vista/Eastlake and Rancho Bernardo/4-S Ranch have also been home to a large number of foreclosures. Wherever new homes were built from 2002 to 2006 in San Diego, nearly all of the residents turned upside down on their mortgages as a result of the recent price depreciation. These new home buyers, particularly those who financed their purchases with zero down payment, have been prone to walk away from their homes and their mortgages.
If there is a positive aspect of the new law, it is that lenders are now required to report to the state legislature regarding foreclosure reductions and loan modifications. Hopefully the increased reporting will give the legislators a better sense for the local California real estate markets. In San Diego, there is presently a genuine shortage of homes for sale. Buyers are now fiercely competing for a limited supply of San Diego homes. Overbidding has become the rule rather than the exception as it has turned into a seller’s market, with the banks and a limited number of bank REO listing agents holding the reins.
California legislators need to realize that real estate is an inherently local phenomenon. The state government could and probably should act to stem foreclosures in some California communities. However, a wise policy would be to effectively monitor sales activity, inventory levels, and market times at the local level to determine where to focus their efforts. A blanket approach to foreclosure policy on a statewide or nation-wide basis does not make sense. La Jolla homes and Del Mar homes have nothing in common with Bakersfield and Sacramento homes. It is also clear that the Orwellian approach of providing foreclosure assistance in name only is a waste of valuable state resources.
In San Diego the return to a “normal” and “healthy” real estate market now requires a greater number of San Diego CA homes for sale, not fewer. Median sales prices of homes in San Diego CA have risen for five months in a row. There are lines of prospective buyers at the door of every reasonably-priced house and condo that comes up for sale in San Diego County. Pass the word to your California representatives that they need to take a closer look at the San Diego real estate market and act accordingly.