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Date: 10/15/2008
Authors: Paul Jackson

News Bite

Legislation Drives Huge Drop in California Mortgage Defaults

Recent legislation in California helped push notice of default filings, which indicate the start of the foreclosure process, down 61.8 percent in September, according to a recent report released earlier this week. ForeclosureRadar, which published monthly foreclosure data, found that only 16,352 notices of default were filed in September, down from 42,790 in August, and a decrease of 36.4 percent from a year earlier.

California State Senate Bill 1137, which went into effect Sept. 8, imposes significant new requirements on lenders prior to filing for foreclosure — including the requirement that servicers contact homeowner borrowers to explore options for avoiding foreclosure on their primary residence at least 30 days before filing a notice of default. The bill specifically looks to encourage loan modifications as an alternative to foreclosure. The state, however, cannot force lenders, often operating under Federal Law, to modify an existing loan.

The bill also affected new notice of trustee sale filings, which dropped 47.3 percent from August. The bill did not directly impact foreclosure sales; however, the number of foreclosure sales in the state still fell by 12.4 percent. Despite the monthly drop, properties taken to sale at auction increased 163.2 percent from the prior year, to 23,409 sales, with a combined loan balance of $9.75 Billion.

Lenders took back 95 percent of the properties taken to auction, ForeclosureRadar said, with a combined loan value of $9.19 billion. Third party purchases were flat from the prior month, but increased slightly as a percentage, due to the decline in sales activity.

Average discounts offered by lenders on the outstanding loan balance at foreclosure auction averaged 37.4 percent statewide; with 36 percent of properties taken to auction being offered at discounts of 50 percent or more.

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