Notices of default have rebounded from the stall caused by California State Senate Bill 1137, which temporarily slowed foreclosures by imposing new requirements on lenders. With 42,421 filings in December 2008, notices of default are back to the record levels reached in the second quarter of 2008, nearly doubling the 21,557 notices of default recorded in November, according to ForeclosureRadar's California Foreclosure Report.
Notice of trustee sale filings were relatively flat month-over-month, however, notices of trustee sale are filed an average 116 days after the notice of default, so a rebound in the coming months is likely, the company says.
Properties taken to sale at auction increased only slightly between November and December 2008, to 16,298 sales – a 72.6% increase from the same time last year. Third-party purchases at trustee sale auction decreased 12.5% from November 2008, but were still 156% above third-party purchases in December 2007. Lenders took back nearly 95% of the 16,298 properties sold at auction, with a combined loan value of $8.95 billion.
‘The effort by the California State Legislature to reduce foreclosures has now clearly failed.’ says Sean O'Toole, founder of ForeclosureRadar. ‘While State Senate Bill 1137 was well intentioned, forcing lenders to talk to homeowners won't fix this problem.’
While a number of lenders have announced significant loan modification programs to reduce payments to affordable levels, these plans fail to address the fact that the average foreclosure in California now has $180,000 in negative equity. ‘Lowering payments may provide a temporary fix,’ adds O'Toole, ‘but lenders simply don't have sufficient reserves to lower principal balances enough to help homeowners in foreclosure escape the prison of debt their home now represents.’