Outlook for Government Foreclosures Program in the Bay Area

by on Foreclosure Rates

As the number of notices of default increased in the Bay Area and in other areas in California, housing analysts are not so sure about how the government foreclosures program can solve the foreclosure crisis in the state.

Based on data from San Diego-based MDA DataQuick, notices of default across California increased in the first quarter by 19 percent to 135,421 and increased in the Bay Area by 17.6 percent to 19,438, compared to figures in last year’s first quarter.

According to real estate analysts, among the reasons for the significant increases were delays in filing by lenders due to government foreclosures schemes. In September last year, the state government created a law requiring mortgage lenders to implement more steps before issuing foreclosure notices. Additionally, in the last months of 2008 and first months of 2009, many mortgage banks, including Fannie Mae and Freddie Mac imposed foreclosure moratoriums. These delayed the issuance of notices of default, which surfaced in the first quarter surveys by MDA DataQuick, RealtyTrac and other foreclosure tracking firms.

In RealtyTrac’s report for the first quarter, California foreclosures reached a total of 230,915 and a foreclosure rate of 1 unit in every 58 housing units, making California third in the firm’s ranking of states based on foreclosure rates. The total foreclosure filings included 60,256 notices of trustee sale; 124,875 notices of defaults and 45,784 real estate owned private lender and government foreclosures.

Based on MDA DataQuick’s research, 43,620 houses were repossessed by mortgage lenders in the first quarter. The Bay Area had 6,050 housing units repossessed.

The main question among some housing analysts and advocates is how the government foreclosures program can solve these rising numbers of notices of defaults and foreclosures.

Alan White, a professor at Indiana’s Valparaiso University, has been studying loan modifications and has found that the government foreclosures program will surely help, but it has limits and would not be able to help homeowners with significant negative equities.

White said that over 20 percent of all mortgage loans have become underwater loans – with loan amounts much higher than the value of the homes financed.

He also said that second mortgages, which comprise a significant portion of mortgages in bank foreclosures, are not covered by the government foreclosures program. Mortgage servicers, including Mark Hanson of Field Check Group, said that only about 10 to 15 percent of homeowners in foreclosure are qualified under the government foreclosures program.