DUAL Tracking is the practice of negotiating with clients to modify a mortgage so that payments become more affordable while simultaneously pursuing foreclosure. What most of the calls I am getting is that the Governor signed a bill to “Stop the Foreclosure” process — which is totally incorrect.
The banking and real estate industries opposed the foreclosure-prevention bills, calling them well meaning but overly complicated and so legally ambiguous that they would spur frivolous lawsuits.
Meaning more crooks would have more ideas and sales pitches to lure more troubled homeowners into believing that this is a new savior for their mortgage problems.
Bankers also said the bills would increase real estate transaction costs, slow the housing recovery, tighten credit and lower home values.
The proposed law doesn’t cover mortgage holders who bought property for investments and so-called strategic defaulters, who turn in keys and voluntarily go into foreclosure.
The new law is unlikely to deliver the relief to homeowners battling foreclosure because what the banks will do now is speed up the process of loan modification and trial periods. More than likely this will make getting a mortgage in California even tougher.
The lenders still will follow the same protocol on qualifying distressed homeowners for Loan Modification; therefore if you actually can show proof of hardship and proof that you do have the ability to pay the mortgage based on their 31% DTI (debt to income) ratio to pass for a loan modification, you are in luck. But mostly everyone is hoping for a package that will just help homeowners with loan balance reduction or a $1500.00 mortgage payment on a $500K loan. Which is not yet the case.
Adding some transparency to a complicated and confusing legal process certainly can’t hurt. Here are the advantages and disadvantages:
The good: Banning bank employees from signing affidavits and other foreclosure documents without proper verification – a scandalous practice known as “robo-signing.”
The law also requires that banks give specific reasons for denying a loan modification. Banks must also provide borrowers a single point of contact to help them navigate the labyrinthine loan mod or foreclosure process. No quarrel there.
The bad: Ending the practice of “dual tracking,” in which lenders initiate foreclosure proceedings while considering a borrower’s loan mod application. Dual tracking is reviled because, the law’s advocates say, banks can sell foreclosed houses out from under poor borrowers struggling in good faith to save their homes.
But imposing bureaucratic delays on the foreclosure process – often just delaying the inevitable – raises costs and heightens uncertainty. Those costs will be passed on to qualified buyers while potentially pricing out first-time borrowers.
The very bad: Empowering consumers (read: trial lawyers) to sue lenders for “material violations” of the law without clearly specifying what the heck that means. The law also allows for lawyers to seek sizable civil penalties for supposedly “reckless” or “willful” violations. It’s an open invitation for abusive and frivolous lawsuits – which also raises costs.
Sure, some people would get to stay in their homes. Some private investors would lose big. But one or two favored private equity firms would make out like bandits.
The scary part is more down turn in the real estate market. The global credit rating firm warned this week that these eminent domain schemes could kneecap private residential mortgage-backed securities. That matters because property values, which are already in the tank in Southern California’s Inland Empire and elsewhere, could go even lower as investors dump their worthless securities.
Four years into a housing crisis, government has floundered to find solutions. They’re looking in all the wrong places. No magic bullet yet, hopefully its because of the fight we have up the Washington due to this election, I certainly hope that whom ever is going to lead us the next four years realizes that the housing market should be first to improve.
A recap to the new law passed in California, be clear that it’s not exactly what you are looking for.
Thanks for your inquiries and I hope this will shed some more light in this very gloomy RE market we have now. If you are a buyer of RE today, you will not think that there is a problem, in fact the problem now is shortage of properties for sale or shortage of inventories of houses. But to be on the side of the struggling homeowners is another thing that has not changed.
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Please call Ken Go of 1st Innovative Finance Group at (562)697-7028 or write to [email protected] for your inquiries, advice and comments.
