A new state law that requires lenders to work harder
to help distressed borrowers hold on to their homes
led to a steep drop in September default notices in
San Diego County, and foreclosures also declined.
A total of 1,206 homes received notices of
default, which mark the start of the foreclosure
process, the MDA DataQuick research firm reported
yesterday. That marked a 58 percent decline from
August and a 35 percent drop from September 2007.
While analysts said the September dip was
aberrational, it could give homeowners who have
fallen behind on their mortgage payments time to
work out new payment plans with their lenders. And
there are other signs that the housing market might
Notices of default had fallen slightly in each of
the previous four months before the law took effect,
and foreclosures have fallen for two months in a
row. September's 1,814 foreclosures were down 8
percent from August but still up 163 percent from a
For the third quarter, the 7,062 notices of
default were up 24.5 percent from a year ago, while
the 5,797 foreclosures were up 169 percent.
Kelly Cunningham, an economist for the San Diego
Institute for Policy Research, cautioned that the
housing market appears to be a long way from
recovery. Risky, adjustable-rate mortgages will
continue resetting well into 2009, triggering still
more foreclosures, he said.
The September slowdown in notices of default
affected all of California, DataQuick reported.
Analysts said they weren't sure how long it would
take for loan servicers to catch up with the
workload, as they take greater pains to modify the
terms of loans in danger of failure.
Senate Bill 1137, which took effect Sept. 8,
coincides with a greater willingness on the part of
lenders to negotiate with homeowners. In many
instances, the bill calls for lenders to try to
contact delinquent borrowers, then wait 30 days
before filing a default notice.
“What is happening is the government and banks
are realizing that by forcing so many foreclosures,
they are causing a tremendous amount of value
deterioration,” said Mark Goldman, a real estate
finance instructor at San Diego State University.
“They are hurting neighborhoods. They are hurting
the value of the remaining collateral.”
According to DataQuick, a typical home
foreclosure takes four to six months, if not longer.
The new law will add a month to the process, said
Dave McDonald, president of the local chapter of the
California Association of Mortgage Brokers. The law
isn't expected to influence mortgage failure counts
until the end of the year.
Alexis McGee, president of the Foreclosures.com
investment advisory firm, believes that the effect
of the law will be temporary.
“All it is doing is pushing everything back one
month,” she said.
However, Dustin Hobbs, spokesman for the California
Mortgage Bankers Association, says the law's impact
will be more lasting.
“More borrowers are getting more time to get in
touch with their lender and work things out,” he
said. “That is definitely a positive development.”
Foreclosure sales continue to place downward
pressure on prices. They accounted for a record 47.3
percent of all county resales last month. The median
price of a home in the county last month was
$328,000, a 6 percent drop from the previous month
and a year-over-year decline of 30 percent.
While foreclosures have been devastating to many
people, some have found a way to turn bad times to
their advantage. Mark Milling, a 44-year-old
lifeguard at Bob Wilson Naval Hospital in San Diego,
has built a second career as a landlord, buying and
repairing run-down condominiums in Lakeside, La Mesa
and Mission Valley. He began buying units when
prices were low, stopped when they soared in the
mid-2000s, and resumed when rising foreclosures
pulled prices down.
Milling has several outstanding, interest-only
loans that will adjust to prevailing rates between
2015 and 2018. While adjustable loans have forced
some investors into foreclosure, Milling says he's
not concerned. He expects his rents to rise to
offset higher mortgage costs.
“I know the market will turn around,” he said.
Anyone who decides to follow Milling's example
should be prepared to pay a hefty price in terms of
time and effort, however.
He said that when his units need repairs, “I do
all the work myself. I do all the painting and all
the remodeling. I have learned to put in tile and
plumbing. I have learned how to replace a toilet and
fix showers. I have to work very hard. I come home
with a sore back and paint in my hair.”