The figures for the three months ending on September 30 reveal a 37% drop in the number of foreclosures from the same period a year ago. Last year, California foreclosures were at an all-time high. The worst may be over in large part due to a different approach taken by banks.
Unemployment rates persist and a substantial number of homes with adjustable-rate mortgages still have yet to reset their rates, so plenty of homes remain at risk. In fact, the rate of mortgage payment defaults, the first step toward foreclosure, has increased at the same time foreclosures have dropped.
Now, instead of automatically foreclosing, banks are more patient with borrowers. One reason is that they recognize that flooding the market with foreclosures leads to a drop in housing prices, further lowering their assets and leading to more foreclosures. Also, the federal government's $700-billion Troubled Asset Relief Program bought some influence over banks, and the government has pressured lenders to deal more flexibly with borrowers. If lenders anger the government, Congress may revive bills supporting the "cramdown" provision in bankruptcy, which would allow debtors to rewrite the principal on underwater mortgages.
Thus, the banks have every incentive to work with borrowers to abate foreclosures. Borrowers may be well-advised to contact their lender soon while banks remain flexible. Because negotiating with banks can be tricky and time-consuming, borrowers may consider contacting an attorney with experience negotiating loan modifications. An attorney can help borrowers understand their options and how to negotiate with banks.
