Foreclosures delayed, not halted
Orange County Register
By Jeff Collins
...Us: What in a nutshell has been done by the federal and state governments to halt the flood of foreclosures?
Tracey: Back in February, Governor Schwarzenegger signed into law the California Foreclosure Prevention Act (CFPA), which requires lenders to give borrowers an additional 90 days to achieve a workout on a delinquent loan before a foreclosure notice can be issued. The program, which went into effect on June 15th, encourages workout terms that are very similar to those presented in the "Making Homeownership Affordable" plan that the Obama Administration introduced last spring: reduction in interest payments, extension of the amortization period, and, in worst-case scenarios, reduction of loan principal. In California, lenders may file for exemption from the CFPA if they can demonstrate that they have already put some sort of loan modification program into place.
Us: Foreclosure numbers have dipped, but a new wave of default notices seem to imply that the dip was temporary. Why don't these plans appear to be working?
Tracey: Given that the CFPA only grants a 90-day extension beyond the existing workout period, foreclosures are only delayed in most cases and not halted completely. But aside from the structure of the law itself, we can point to a variety of other factors that are contributing to the rebound in foreclosures: first, high unemployment. Without steady income to service a loan, no amount of modification can bring many homeowners' payments down low enough that they can cover them. Second, although home sales have started to recover in some places, there is still enough oversupply that at-risk or delinquent homeowners cannot simply escape their situation by selling their home. Finally, many of the largest lenders in California have received exemption from the CFPA program: Bank of America, JP Morgan Chase, and Wells Fargo, among others. If a homeowner got their loan through an exempt bank, the CFPA program will not help them.