New Foreclosure Laws Passed by States are Reversing the Tide of Foreclosures

The foreclosure news in recent times has been quite grim. Recent news has included such statistics as:

  • One in 33 current U.S. homeowners may be headed toward foreclosure in the coming years because of subprime loans, according to the National Center for Sate Courts' (NCSC) report, Defaulting on the Dream.
  • In some states, the crisis is particularly acute--in Arizona, for instance, one in every 18 homeowners could lose their home; in Nevada, the ratio is one in 11.

The Effects of Foreclosure
In 47 states and Washington, D.C. the number of mortgage loans entering foreclosure as of December 2007 had increased by at least 20 percent since December 2006. Ten states alone could lose a total of $6.6 billion in tax revenue in 2008, according to a recent analysis by the firm Global Insight.

Homes in foreclosure usually sell far below market value, especially in today'sreal estate market, and unsold properties are expensive to maintain. unsold properties can be expensive to maintain. Lenders experience foreclosure losses ranging from 20 cents to 60 cents on the dollar, with one estimate of a typical lender's foreclosure cost averaging $58,800 in the early 2000s.

Communities feel significant ripple effects. Close to 41 million homes across the nation are projected to decline in value by an average of $8,800 because of subprime State governments and municipalities also are facing losses on subprime investments. Several state- and county-run investment pools--used by thousands of school, fire, water and other local districts--hold interests in structured investment vehicles that include subprime loans. "Nobody knows how much more pain is coming. State funds could lose hundreds of millions of dollars," said Lynn Turner, chief accountant of the U.S. Securities and Exchange Commission from 1998 to 2001.

States Take Decisive Action to Stop Foreclosures
As long as foreclosures keep rising, everyone loses. This is why a growing number of states have taken action, seeking at least to mitigate the damage to homeowners, lenders, municipalities and their own budgets. These states are using various approaches to help homeowners at risk.

The State of Ohio launched a statewide campaign, including a 24-hour hotline, to encourage borrowers at risk of foreclosureto seek counseling. Ohio also sought involvement across the state to improve assistance for borrowers facing foreclosure, calling on lenders in the state to modify high-cost loans for homeowners. In early April, Governor Ted Strickland reached agreement with nine mortgage servicers on a significant effort to modify the terms of adjustable-rate subprime mortgages in Ohio.

Michigan now has two loan funds that help homeowners facing foreclosure, a statewide consumer education campaign and a task force; the state also requires greater disclosure of terms and conditions before a high-risk loan is made. California, which launched a task force last year, regulates mortgage brokers and high-risk loans and has issued a notice to loan servicers calling on them to agree to wholesale loan adjustments. Recent California foreclosure news highlights recently passed legislation (Civil Code 2923.6) that enforces and promotes loan modifications to stop foreclosure in the state.

Some states are contemplating more aggressive actions to delay, and preferably prevent foreclosure and its ripple effects on neighboring homes. In New York, legislators proposed amoratorium on foreclosures for one full year. Massachusetts, Minnesota and New Jersey have proposed six-month deferments of foreclosures, with Minnesota and New Jersey's proposals including some form of rent-back or partial payment from the delinquent borrower.

More and more states are passing laws that delay the foreclosure process to help give borrowers more time to get help and potentially stay in their loans. They are also passing laws that more strictly regulate lenders and their lending practices to establish strong consumer protections for sub-prime loans and minimum underwriting standards that protect borrowers.

New Foreclosure Laws are Helping
New state laws that require loan servicers to give advance notice before filing a notice of default helped push down foreclosure-related filings by 12 percent nationwide in September, reports data aggregator RealtyTrac. The Business Journal of the Greater Triad area reported some excellent North Carolina foreclosure news. The number of foreclosures in North Carolina fell nearly 27 percent in September when compared with a year ago.

California, which accounts for nearly one-third of foreclosure activity, passed legislation that took effect in September requiring lenders to make contact with borrowers 30 days before filing a notice of default. Notices of default in California dropped 51 percent in September, with a corresponding "significant impact" on national numbers, RealtyTrac said.

Between the laws requiring loan servicers to give advance notice before filing a notice of default and the more aggressive laws requiring lenders to accept loan modifications to help lower payments and keep borrowers in their homes, the foreclosure tide appears to be changing. Until the foreclosures can be brought under control, housing prices cannot stabilize. The state and federal governments recognize this and are taking more active measures to help homeowners stay in their mortgage loans. More and more lenders are accepting loan modification proposals.

Are you facing foreclosure? Do you need more information about how new foreclosure and loan modification laws can work in your favor? Please complete this short form below and one of our foreclosure prevention specialists will contact you shortly to discuss your housing needs.

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