State Foreclosure Limits Have Had Limited and Temporary Impact
Many of the states saw a temporary reduction in foreclosures only for them to jump back up, according to RealtyTrac, a firm that tracks foreclosure data.
A California law took effect last September requiring lenders to provide 30-days notice before foreclosing on a property. In August, 44,278 default notices were sent out, that figure dropped to 21,665 in September, but by December it was up to 42,000.
California, Colorado, Maryland, Massachusetts, New Jersey, New York, North Carolina, Ohio, Pennsylvania and Virginia all passed laws aimed at providing some relief from foreclosures.
Massachusetts' law is the most comprehensive. It requires lenders to give homeowners a 90-day notice before foreclosing, compared with the previous requirement of 30 days. It applies to all mortgages. New York has a similar law but it only applies to nontraditional or subprime mortgages.
None of the laws, besides Massachusetts', have an expiration date.
RealtyTrac Senior Vice President Rick Sharga said the reason these laws often don't help is that they aren't usually tied to programs that help consumers rewrite the terms of their loans. He noted that Colorado has been particularly aggressive at developing a range of programs aimed at preventing foreclosures and encouraging financial planning. As a result, while foreclosures increased in the United States by 81% last year, they only went up 27.9% in Colorado.
Despite programs in place to delay foreclosures, foreclosures in Massachusetts increased 150% last year and Maryland's were up 71%.
Nationally, during 2008, 1.84% of all housing units received a foreclosure notice, compared with 1.03% in 2007.
In December, there were foreclosure filings on 303,410 properties, up 17% from November and up 41% from December 2007. Fourth quarter foreclosure activity was down 4% from the third quarter a result of some of the state programs but were up 40% from the fourth quarter of 2007. Sharga noted that foreclosures started creeping up again in the second part of the fourth quarter of 2008, after some of the delays.
Sharga said his company expects foreclosures will continue to rise this year, despite the various state measures in place, because there is no comprehensive national plan to help distressed homeowners. But he said three other factors will cause 2009 to set new records for people losing their homes.
"The delaying tactics that took place in 2008 mean that properties that should have been in foreclosure last year will be this year. Also, several hundred billion dollars of ARMs and Alt-A ARMs due to reset next year will be reset starting in the second quarter of this year because of declining values and consumers can't refinance," he said. "Unemployment rates will go up so you will have blue collar workers with 30-year fixed mortgages unable to make payments, this will make things worse."
The Obama administration and congressional Democrats have talked about expanding programs to prevent foreclosures. One proposal, which credit unions and banks oppose, would allow bankruptcy judges to reset the terms of a mortgage for people who file for Chapter 13 bankruptcy protection.