Californiaboasts one of the fastest foreclosure timelines in the nation, which is helpful given that it has the highest volume of distressed loans in the nation. That may, however, be about to change.
Last week the California state legislature passed two bills purported to protect homeowners. They prohibit dual tracking, which is when the bank tries to modify a loan while at the same time going forward with a foreclosure. It also requires mortgage servicers prove to borrowers, in documentation, that the lender has the right to foreclose. Fraudulent foreclosure affidavits would result in civil penalties.
Many of these requirements are also part of other previous settlements with the banks, and some large lenders claim they’re already doing them. Critics, however, argue that the new regulations (the governor is expected to sign the bills this week) would make it harder to enforce foreclosures and slow down the process.
On another front, some local California officials are trying to invoke eminent-domain powers to modify mortgages that are underwater (when the borrower owes more than the home is currently worth).
Eminent domain can be invoked when a property is deemed to be a blight on the community and the seizing of it would be good for the general public. Critics say it’s a stretch legally and could put yet another roadblock in the foreclosure process.
Still advocates say it’s a way to avert foreclosures and stabilize hard-hit California communities, some of which are declaring bankruptcy.
It all comes down to consumer protections versus a speedy recovery to housing. Whether it’s lenders trying to save borrowers from foreclosure through modifications and principal reduction, or laws trying to protect borrowers from faulty foreclosure processing, or inventive ways to change what is owed on a mortgage, the plain fact is that many borrowers simply cannot afford the homes they are in.
The majority of the 5.5 million properties whose mortgages are either delinquent or already in the foreclosure process will end up on the auction block.
There is a strong argument that the housing market needs to heal itself before it can grow again, no matter how painful that healing process may be. Clearly American consumers were not well-protected during the historic housing boom, nor during the ensuing bust. Laws needed to be changed, and banks needed to be held accountable and punished for fraudulent practices.
The question now is: When do we step back and let the wounds of this crisis heal?
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