California announces a 90 day Moratorium on Foreclosures

MY OPINION
The market is about to change and it’s about time. I have been saying for the last two and a half years that foreclosures beget foreclosures in the current market. One dead lawn makes another dead lawn and with each dead lawn with a bank owned sign reduces the neighborhood value another 6%.
They finally get it. The 90 day moratorium that started yesterday will serve to implement the new federal policy called “The Foreclosure Alternative Plan.” The plan outlines the Fed’s Streamline Short Sale Plan. It offers several incentives for loan servicers and asset managers that will stop the foreclosure madness and implement a short sale program that will help stop the price decline and lose the term Bank Owned.
Look for change early in 2010, foreclosure, bank owned, auction, REO and dead lawns will be gone!

First let’s understand the foreclosure process here in California. The Buyer is likely 90 days late on their mortgage payment. The state requires 90 days to try to work out a loan modification. In the event the home owner cannot qualify for a loan modification the lender files a notice of default which requires another 120 days. That’s 300 days then add say another 60 to 90 days for the lender to put the repossession thru their process, arrive at a value and proceed to sell the property, round figure that to about 1 year.

During that year here in the Inland Empire the investor has lost about 30% of the value of the asset and had $5000+ in legal cost to accomplish the foreclosure. Now they need to evict the owner, re-key the property, do a trash out and clean it up. Someone stole the carpet and it needs to be painted. The lawn is dead and the city fined the lender $300 for not keeping the lawn green and repairing the broken window. The Home Owner Association dues are past due, the outstanding water bill is $800 and the trash bill also went unpaid. Now all that’s left to do is announce that there is another bank owned property is for sale.

Now, lenders and the Fed are beginning to understand this problem is too big to handle in traditional ways, and understanding that loan modifications don’t work over the long haul (at least 50% of loan modifications re-default within the first year. I am aware of home loans being modified 3 times and still re-default).

Here’s the only program that is going to work. Streamlined Short Sales with the homeowner staying in the property until it is sold. Lenders are paying up to $4000 to get occupants out of foreclosed homes, it’s called cash-for-keys. So, let the lender arrive at a price up front, they now have 90 days to do that in California. Before the property is placed on the market, have the seller continue to stay in the home, keep the lawn mowed and everything else in good condition. The property is listed and sold as if nothing is wrong. Yes it’s a short sale, so what, the lender is saving about a year in getting the property on the market. No bank owned signs, no auction signs (nothing drives prices down like the word auction). Give the owner $4000 cash-for-keys money to insure the co-operation with the entire selling process. With in about 6 months, bank owned, foreclosures, distressed sales will be gone and housing prices will stabilize.

I think they get it. I hope they get it!

Streamlined Short Sales the only real answer to falling home prices.