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Report: Government Programs Impact California Foreclosures

""ForeclosureRadar"":http://www.foreclosureradar.com, which tracks every California foreclosure and provides daily auction updates on its Web site, issued its March Foreclosure Report for the Golden State on Tuesday. According to the company's market data, foreclosure notices hit a new record level, while foreclosure sales in the state dropped last month. ForeclosureRadar stated in its report that ""government intervention continues to play havoc"" in the California housing market when it comes to foreclosure numbers.
In March, California's notices of default, the first step in the foreclosure process, increased 29.3 percent over February, to a record 54,268 filings. That's 26.3 percent higher than the number of default filings issued a year ago, and a 25.8 percent increase from the previous peak level reached in April 2008.
The state's notices of trustee sale, which set the auction date and time, rose 82.3 percent from the prior month, though not yet reaching the prior record set in July 2008, ForeclosureRadar reported. A total of 33,178 sale notices were filed in California in March, a 19.6 percent increase over the same time last year.
While foreclosure notices rose dramatically, ForeclosureRadar said, sales at auction decreased 41.4 percent, to reach the lowest level seen since the third quarter of 2007. On an annual basis, auction sales are down by 36.6 percent. Only 10,040 California properties were sold at auction last month, representing $5.3 billion in value.
The percentage of homes sold to third parties increased again in March to 10.7 percent of those taken to auction, or 1,073 properties, ForeclosureRadar said. While banks still take back the majority of foreclosures at trustee sale, third-party bidding in California has continually increased since January 2008.
Based on ForeclosureRadar's data, lender discounts at California auctions increased substantially from February, reaching an average of 44.1 percent last month. The largest discounts were seen in Monterey County with an average discount of 56.1 percent, while San Mateo County was among the lowest at 20.7 percent.
According to ForeclosureRadar, the dramatic differences in the number of foreclosure filings and foreclosure sales in the state are best explained as the unintended consequences of government intervention in the foreclosure process at both the state and federal level.
Sean O’Toole, founder and CEO of ForeclosureRadar, said, ""Not one government program aimed at addressing the foreclosure problem has dealt with the core issue of negative equity; and there can be no doubt these programs are having dramatic impacts on the foreclosure process.""
O'Toole continued, ""Unfortunately, the only tangible effect of these programs so far is a significant increase in uncertainty for homeowners, lenders, investors, and even government officials trying to make sense of these wild swings in activity.""
As far as the specific government programs currently impacting the foreclosure numbers in California, ForeclosureRadar pointed to California Senate Bill 1137, which requires lenders to contact homeowners before filing a notice of default. According to the company, this bill resulted in a significant, but temporary, drop in foreclosure filings starting in September of last year. But because the bill failed to address the issue of negative equity that many Californians now face, ForeclosureRadar argues that it only created a backlog of foreclosure filings, which may partially explain the recent rise in foreclosure notices. More significantly, the company said, this law perfectly explains at least a portion of the decrease in sales, since the average lag time to foreclosure sale was 176 days in March - a figure that aligns exactly with the September drop in notice of default filings.
The California Foreclosure Prevention Act, which goes into effect this summer, will add an additional 90 days to the foreclosure process if lenders fail to take certain actions. According to ForeclosureRadar, the dramatic rise in foreclosure notices occurring now may be an attempt by lenders to process as many foreclosures as possible before this law takes effect.
Also affecting foreclosure numbers - not only in California, but around the nation - is federal lawmakers' recent request for foreclosure moratoriums to allow the incoming administration time to put housing programs in place. Many of these lender moratoriums were in full force through March, contributing to a decline in monthly numbers. But several of these foreclosure suspensions have now being lifted, most notably Fannie Mae and Freddie Mac, which ended their moratoriums on March 31.
ForeclosureRadar also noted that a number of federal initiatives to stabilize financial institutions, including the Troubled Asset Relief Program (TARP), Public-Private Investment Program (PPIP), and changes to ""mark-to-market"" accounting practices, may be leading some lenders to halt foreclosures. The company contends that lenders may be hoping to sell troubled loans, gain government guarantees for those loans, or avoid losses by holding the assets on their books at higher values than they could get in today’s real estate market.
ForeclosureRadar argues that combined, these programs have created ""significant turmoil in foreclosure filings and sales, as can be seen in the dramatic swings in foreclosure activity that began in September 2008."" At this point, the company says, the only thing that is clear is that there are still a large number of properties in default, and the core problem of negative equity remains unaddressed.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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