Update on Foreclosures from the CAR President

Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®


October 12, 2010

Dear C.A.R. member,

No doubt you’ve heard the news recently that a number of major banks have volunteered to temporarily suspend foreclosures in 23 states and Bank of America is temporarily suspending foreclosures nationwide.

While this situation is changing daily, I want to tell you what we currently know to answer any questions you may have.

In late September and early October some lenders and servicers began voluntarily halting foreclosures in select states while they reviewed their foreclosure processes.

So far, only Bank of America has extended its foreclosure moratorium to California, where the vast majority of foreclosures are conducted without a court order. Foreclosures in the other 23 states are processed through the court system.

Non-judicial foreclosures in California, however, do have legal requirements that lenders must follow. For example, California law requires that lenders for certain mortgage loans made between Jan. 1, 2003, and Dec. 31, 2007, attempt to make contact with borrowers to discuss options for avoiding foreclosure at least 30 days before filing a notice of default. Lenders also must sign a declaration in the notice of default stating that they tried to contact the borrower, made contact with the borrower, or fall within an exception (such as a bankruptcy filing).

The lenders and servicers that have placed their foreclosure moratorium on properties in the 23 states where courts are involved in the foreclosure process include: Goldman Sachs Group Inc’s Litton Loan Servicing, Ally Financial Inc.’s GMAC Mortgage unit, JPMorgan Chase, and PNC Financial.

These lenders/servicers have only temporarily halted their foreclosures while they review their foreclosure process. This is in response to findings that questioned whether some lenders/servicers were following the correct procedures to foreclose on a property.

This halting of foreclosures is a voluntary action taken on the part of these lenders/servicers and has not been mandated by either the states or the federal government.

Some members have begun to report the immediate impact of this moratorium on transactions that involve foreclosed properties. Delays in escrow and the removal of listed foreclosures are temporary results of this moratorium.

The immediate impact on the market will be the slowing of home sales, which could put upward pressure on home prices in the short term. The long-term effect on the market is uncertain at this point as it depends how long the moratorium remains in place.

Assuming the moratorium is lifted in the next month, the flow of REOs to the market should resume, but the uncertainty created by the moratorium may cause hesitation on the part of buyers.

Federal agencies, including the Office of the Comptroller of the Currency, the Federal Housing Administration, and the conservator of Fannie Mae and Freddie Mac, have asked lenders and servicers to review their foreclosure processes. This review would apply to all states including those like California where the vast majority of foreclosures are non-judicial.

The participating lenders and servicers believe their internal review processes should take anywhere from a few weeks to 30 days to complete.
NAR has sent a letter to regulators expressing their concerns over the foreclosure issue. Please visit www.realtor.org/foreclosure for the latest developments and additional information.

C.A.R. is supportive of lenders taking action to ensure homeowners are not improperly foreclosed on and that they are following state law. We hope they are able to conduct their review expeditiously so as to minimize the impact on California’s housing market.


Sincerely,

Steve Goddard
2010 President
CALIFORNIA ASSOCIATION OF REALTORS®

New Legislation provides Golden Tax Credit for California Buyers

A piece of legislation was signed on March 25th that should be a tremendous incentive for home buyers in California to take action, and soon! AB132 provides $200 million for home buyer tax credits, dividing the money equally between purchasers of new (previously unoccupied) homes, and first-time buyers of existing construction. Beginning with purchases closing escrow on or after May 1 until the end of 2010, eligible purchasers of a personal residence will be able to take a tax credit equal to the lesser of 5% of the purchase price or $10,000, in equal installments over three consecutive years. A requirement of the bill is that purchasers live in the home for at least two years, or else they forfeit the credit. Those rules will apply from January 1 through July 31, 2011 as well, if funds remain.

C.A.R., the California Association of REALTORS, reported that nearly 40% of first time buyers last years indicated that they would not have purchased a home had the federal tax credit for first-time buyers not been offered. That program is still in effect, and first-time buyers who manage to get into contract by the end of April could qualify for an $8,000 Federal Credit in addition to the new $10K credit from the state.

The previous California program was supposed to have continued into the first months of 2011. However, the popularity of that program was so great that all funds were used by June 2009. That program applied only to buyers of new-construction. Some analysts calculate that the new California program funds will only last for one month or so before first-time buyers of existing homes snap them all up. Time is of the essence!

How does a homebuyer qualify? The state's Franchise Tax Board (FTB) allocates the credits on a first-come, first-served basis. The homebuyer must submit a properly executed settlement statement to the FTB within two weeks of close of escrow, which can occur no sooner than May 1, 2010. In order to receive the tax credit, escrow must close no later than Dec. 31, 2010, unless a credit has been reserved prior to that date, in which case the home must close escrow before Aug. 1, 2011. For these purposes a "first-time buyer" is defined as any individual who did not have an ownership interest in a principal residence for the three years preceeding the close of escrow date of this qualifying purchase. Homebuyers can check to see more details by checking the Franchise tax board website. That is where they also will need to check once the program has begun to see if funds are remaining.

Between this new text credit, the possibility of still taking advantage of the Federal credit through April 30th, and the current low mortgage interest rates that have been bobbing upwards lately, one would hope there would be great incentive for buyers to be willing to compromise a bit on their list of requirements, in trade for some handsome financial advantages!

Pending Home Sales Rise for Record Eight Straight Months

Pending home sales rose again, marking eight consecutive monthly gains – the longest streak since measurement began in 2001, according to the National Association of Realtors®. The Pending Home Sales Index rose 6.1 percent to 110.1 from a reading of 103.8 in August, and is 21.2 percent higher than September 2008 when it stood at 90.9. The gain from a year ago is the largest annual increase on record, and the index is at the highest level since December 2006 when it was 112.8. Lawrence Yun, NAR chief economist, said the momentum is understandable. “What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,” he said. “Home values will stabilize sooner rather than over-correcting. That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery.”

Read the Release