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Foreclosures and related problems are nagging Congresswoman Laura Richardson, refusing to leave her. After being harried by default notices it is now the turn of code enforcement personnel to draw her attention to her house being a public nuisance. It does not speak well for her constituency.

The lawn in front of her house is piled with dead and dying foliage. The broken door is boarded but the gate is busted. The driveway is full of rubbish and debris. The windows have been patched up with brown paper but the backyard is full of rotting fruit and teeming with rats. Little wonder then that it raised the eyebrows of code enforcement officials.

Richardson had purchased the house following her election to the Assembly. Soon after it went into default and was foreclosed upon. Later court auction followed and the house was sold in due manner. But pressure was put on the mortgage holder to rescind the sale and return the house to her. Such a cancellation has never happened before. The guess is that of the two enemies breathing down its neck the lender, Washington Mutual, thought it would be easier to face up to a law suit filed by the buyer rather than stand up to the ire of a Congresswoman sitting in Washington for good many years to come. The purchaser of the house too thought it wise to settle the lawsuit quietly without a murmur.

The office of Richardson had nothing of worth to say about the code enforcement allegations. Steeper fines will be imposed unless she starts cleaning operations within 30 days.

Previously Richardson had explained away the foreclosure threat on this property and two other houses in San Pedro and Long Beach by saying that she had to take recourse to borrowing to fund her election campaign – she not being a wealthy woman.

Foreclosures and code enforcement scandals will not most probably come in the way of her re-election because she has practically no strong opposition in this region. One candidate is college teacher Peter Matthew. He has lost to her many times previously – the last instance being the latest Democratic primaries. Nick Dibs is a part time teacher who managed to secure 7,725 signatures as an independent candidate. Her opponents do not seem to be even remotely qualified to take her on. The ordinary voter down the road does not have much choice.

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There was a recent announcement that thousands of foreclosure victims who have been impacted by the failure of IndyMac Bank will get help from US banking regulators.On July 11th 2008, The FDIC (Federal Deposit Insurance Corporation) of Pasadena, California seized IndyMac – it being the third largest bank in the country. Modification proposals for 4,000 mortgage holders under threat of foreclosures are being considered. It is expected that within the next few weeks modification notices will be sent out to 25,000 borrowers.

Shiela Bair, the chairperson of FDIC said that their goal is to “get the greatest recovery possible on loans in default or in danger of default, while helping troubled borrowers to remain in their homes.”

In 2007 IndyMac was the 9th largest mortgage lender according to Inside Mortgage Finance. It has under its umbrella 740,000 loans either directly or through the services of others. The mortgage portfolio amounts to $184 billion. For many months Bair had been pulling up banks for not speeding up the process of loan modifications. Now is the turn of FDIC itself to practice what it has been so far preaching. Bair thinks that most of the modified mortgages of IndyMac will exceed its foreclosure value. She wants FDIC to play the part of a role model for other financial bodies to emulate.

The modified loans will be for most of the borrowers who are on their first mortgage either directly owned by IndyMac or serviced by it. It will be for those who are seriously in default. It will be only for the borrower’s primary residence. The modified loans will come with an interest of 6.5% - this being the current rate of Freddie Mac for similar mortgages. But rates will be lower for some other mortgages. The goal is to achieve a ratio of debt to income amounting to 38%.

Bair commented that the foreclosure process is costly as well as destructive. By modifying the mortgages at risk from foreclosures, the value of FDIC will be maximized making it easier to find a buyer for IndyMac. Simultaneously the returns to the creditors of IndyMac will improve.

Immediately after taking over the reins of IndyMac, FDIC had for the time being halted all foreclosures amounting to $15 billion mortgage loans. Bair said that servicers had been reluctant to proceed with modifications apprehending reaction from the investors. She is hopeful that with this new approach, confidence will be built up for all sides concerned.

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Contrary to all hopes California is reeling under renewed foreclosure onslaught. During the second quarter of 2008 lenders launched foreclosure attacks on a record number of house owners in California. Simultaneously real estate markets have plunged to all time low levels.

There were 121,341 NOD’s or notices of default – the first step in the foreclosure process during the second quarter. It was an increase of 6.6% from the first quarter of this year and a jump of 124.9% from the second quarter of 2007 during which time there had been 53,943 foreclosure notices. DataQuick released the figures. The firm has been tracking foreclosures since 1992 and the numbers were the highest in the second quarter of this year – 2008, since then.

From the facts and figures it appears that the foreclosures are concentrated in some pockets and emanate from specific categories of mortgages. The areas are where there had been a building frenzy till the end of 2006. Prices had ballooned because of money flowing in from easy to get sub-prime loans. Many speculators had swooped in during this period of housing boom and zoom.

From the first to the second quarter there has been a modest increase in foreclosures. This makes many hopeful that foreclosures are now leveling off. Another explanation is that may be many lenders are opting more for workouts with the borrowers than pursuing the line of foreclosures. There is the third possibility that the lenders are so overcrowded and overwhelmed with defaulting borrowers that they do not have the infrastructure to pursue the foreclosure process.

Most of the loans threatened with foreclosure started during September 2005 and November 2006. The average age of the defaulting loans were 26 months as against 16 months noted a year earlier.

Foreclosures have not spared California prime mortgage holders. On an average count they are five months behind payment. On an average loan of $346,400, the borrowers owe $11,583. Borrowers are 8 months behind on equity loans and lines of credit.

In the second quarter 121,341 default notices were issued involving 118,020 houses because some of the borrowers were tripping on multiple loans like primary mortgage as well as line of equity. The default numbers were record breaking in nearly all the 58 counties of California. In Los Angeles County the residential defaults counted to 21,632 residential units. This broke the prior record of 21,444 of first quarter in 1996.

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The US Senate had introduced a Bill to back borrower-initiated plan to save foreclosure from taking hold of the property and it was binding on the lenders as well. The Bill had been introduced in the House (H.R.3609) and the Senate (S. 26360) was prepared to provide workouts that would be initiated by the suffering house-owners and mandatory on the lenders. It would allow bankruptcy judges to reframe the loan contracts by either lowering the interest rate or by reducing the principal amount of the mortgage loan. The policy intended to make loan repayments more affordable to borrowers.
According to legal experts, the bankruptcy law of 1993 prohibits modification of mortgage contracts of primary residences by bankruptcy judges and so the law needed an amendment to enforce the plan modified by the bankruptcy judges. Besides, the greatest advantage of the plan was that there would be no extra burden on tax-payers.

Dean Baker of the Center for Economic and Policy Research had proposed another plan for house owners in trouble. The plan termed as ‘own-to-rent’ required house owners facing foreclosure to live in their houses as tenants and pay rent at the existing market rate and not pay the mortgage amount as owners, which was higher than the rentals they would have to pay. Borrowers qualified under the plan would be identified at the median house price in a metropolitan area and was unlikely to benefit house owners belonging to the high-income group. The plan would not burden taxpayers either. A bill to the same effect was recently put up at the House (H.R.6116).

The present foreclosure crisis had taken a back seat in political circles that had decidedly little to comment on foreclosure crisis and anti-foreclosure policies, although it was evident that the foreclosure crisis would intensify in the months to follow. Consequently more house owners would join the bandwagon and demand for more suitable policies to address their problem. The house-owner initiated policies were preferred over the lender-initiated policies in that they gave maximum protection to the house owners against foreclosure. It was desired however that both the options be available to all, especially to low- and moderate-income borrowers.

The bill had the support of AFL-CIO, SEIU, NAACP, ACORN, the Center for Responsible Lending and other consumer protection groups.

The only snag in the bill was that the borrower would have to declare bankruptcy and the Mortgage Bankers Association was vehemently opposing the bill from coming into force.

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DataQuick information shows that foreclosures and pre-foreclosures in the Coastside region spell trouble ahead. In Half Moon Bay four foreclosures were noted during the second quarter of this year. Previously in 2007 there was only one foreclosure during the same period.

RealtyTrac collects information of foreclosures daily. According to it there were 29 pre-foreclosures in Half Moon Bay this year. In the second quarter there were 24 pre-foreclosures. During the second quarter of the previous year of 2007 there had been only six pre-foreclosures in this region. The mortgaged property enters the pre-foreclosure stage upon receiving a Notice of Default from the bank.

In Moss Beach there have been three pre-foreclosures and three foreclosures. Montana does not record any foreclosures but there have been 8 pre-foreclosure notices. In La Honda there have been five and two pre-foreclosures and foreclosures respectively. In Pescadero there is one pre-foreclosed house but zero foreclosed ones in El Granada, Princeton and Miramar. In East Bay the situation is worse. But on the coast although the numbers are comparatively low it shows a sizeable increase from the previous year. Most of the foreclosed properties are single-family houses with price ranging from $500,000 to $800,000.In the second quarter of 2007 there were four foreclosures in Half Moon Bay according to DataQuick. This shows 100% increase in this year. What is more worrying is that in pre-foreclosures the increase is 500%. Montara and Moss Beach are also experiencing greater proportionate increases.

The foreclosures largely come from the sub-prime category of mortgages with teaser interest rates. For about a year 1.5% to 2% only is charged. But after the honeymoon period is over the interest jumps to 9% or even 10%. The equity on the houses has vanished. This causes the value of the house to be worth less than the loan amount. As a result many people just walk away.

High number of foreclosures means danger not only to the borrower but also to the lender, the government at all levels and the locality. It means the lender has too many houses on the list and this weakens the real estate market. A slow real estate market means less collection of taxes. Empty houses attract crime and disease, which a government finds difficult to contain with depleted funds. Meanwhile government contributions to public utility services suffer at a time when these are most needed while humans and animals have nothing but the sky to cover them.

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Condominium owners were fast losing out their units to foreclosure that was in a rampage throughout the country for the past two years. The condominium associations were now feeling the heat of the foreclosure crisis and the crunch in their pockets. Real estate investors and owners of houses always depended on these associations who were responsible for the overall maintenance of their buildings. They took charge of property insurance, regular maintenance of utilities, landscaping, and upkeep of other shared amenities.
The Community Associations Institute, based in Alexandria, Va., was a non-profit making organization of homeowners associations, which declares the problem to be a significant one. In the United Nations, some 300,800 homeowner associations manage approximately 24 million housing units and therefore the problem is a gigantic one for them when the majority of the house owners obliged to pay their dues to the association fail to do so for a number of reasons.
The main reason for the default in dues was attributed to the foreclosure crisis. House owners having received a foreclosure filing had lagged behind in mortgage payments, sometimes sought to put off their dues to the associations as an aftermath of the foreclosure crisis. For the associations that have formed recently, and had yet to build up their reserves were the worst hit. Shortfalls were more common as it was expected that they were exposed to owners suffering under the recent housing mortgage and sub-prime lending morass that was rocking the country.
According to David Swedelson, a partner at Swedelson & Gottlieb, a law firm in South California a law firm that represented community associations observed that the older associations that had not set aside reserves for rainy days, budgeted for bad debts and regular maintenance of common-area, were also in for trouble. Associations were bound by State laws and could not abandon their obligations.
The misconception among associations, as pointed out by Muller was that the association had ownership rights of an individual unit after a Foreclosure. In fact it takes title to the property subject to the first mortgage. Associations were loath to foreclosure a unit that offered less value than the borrower’s mortgage, but it was thought to be a necessary step in re-negotiating a deal with the association that might avoid a bank foreclosure where the owner stops paying the mortgage and the lender willing to accept a deed to the property from the association. The buyer was also liable to pay the backlog of the prior owner’s dues.

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In the housing recession California led the nation since the days of the Great Depression. But with reports now coming in from the real estate market, the state may be first to have reached the foreclosure peak.

In Stockton, one of the worst hit pocket of California, sale of houses are picking up. During the second quarter the sale numbers doubled after prices fell by 37%. Across California the sale figures increased for three running months starting from April. This has come after 30 running months of decline said the California Association of Realtors. Of the sale, 40% came from the foreclosure category.

Mark Zandi of Moody’s Economy commented that California had gone through a traumatic time as regards fall in wealth but this shock is laying the foundations of a recovery. He said, “This signals the beginning of the end.” California lost about $1.3 trillion in house equity since the price of houses reached its pinnacle in December 2005. Today discounts up to 50% are being given and will in all probability continue till 2010. Only a fast pace of sales can clear the glut and bring back stability to the market.

For the 18th running month California led the country in foreclosures. In June seven of its metros were including among the top 10 highest foreclosed metro regions. This pushed down prices and ‘distressed sales’ became the norm. Two thirds of the sale dealt with houses priced below $500,000. It would take 7.7 months to clear the accumulated stock. Previously a year ago it would have been cleared within 10.2 months. The average price fell by 38% last month, dropping to $368,250. Professor Karl Case of Wellesley College, Wellesley, is optimistic that “things are beginning to happen.” He opines that unless the stock piled up is cleared nothing will move.

California led the housing boom when prices doubled during 2000 to 2005. All time low interest rates made this possible. With prices rising, sub-prime mortgages made its debut with its ARM’s. Loans were given to anybody with a pulse without checking on their income and capability. But when the floating interests increased to higher niches the housing boom burst and foreclosures swooped down on the nation. Some loans did not need even down payments. About half of the 25 sub-prime lenders of USA are based in California. All these reasons combined to make California the reigning monarch of foreclosures.

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One man’s poison has turned out to be another’s meat. Foreclosures have turned into a boon for clean up firms who are on their toes busy with work. The evicted victims leave behind a lot of junk that need to be sorted and sifted by companies engaged by the banks to do the dirty work.

Trash and junk is now turning into cash. Junk haulers and clean up companies are thriving in the Inland Empire clearing up the debris from foreclosed houses. In fact the pickings are so good that competition is becoming hot with parties vying with each other to win the bank contracts.

Close on the heels of the clean up squads come the real estate agents to overhaul and spruce up the units before putting them on the real estate shop shelves for sale or on auction market.

Frances Valdez deals in such cleaning up operations. She commented that there is plenty of work in Fontana and Rancho Cucamonga and also in Colton. She recalls coming upon a house full of shoes, clothes, dishes, beds and other odd pieces of furniture. Within few months business is piling up centred round these discarded stuff. Valdez is the owner of Dynamic Hauling and REO Services based in Riverside. For cleaning each house her charges range from $200 to $1,300. All the stuff of the previous owner is cleared out and the property is given a cosmetic change. Work is grueling. She has taken on three full time employees to keep pace with her growing business.

She gives a graphic description of her tragic findings. In one of the houses she saw the remains of a hurriedly left behind meal. Obviously the Sheriff knocked asking them to leave when the family had just sat down to a meal. It is heartrending but foreclosures have made it unavoidable.

The foreclosure clean up squads are nicknamed trash-outs but the work is keeping many like Lisa Carvalho and her husband gainfully employed. She and her husband have set up their own concern – Casablanca Associates Inc. It is a real estate mortgage company having its own clean up crew. Their business is steady. She notices more advertisements coming up asking for clean up services. The demand is rising with more foreclosures rushing on to the centre stage.

According to ReatlyTrac the San Bernardino-Ontario-Riverside area ranked second in the national foreclosure race.

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