Foreclosures dropped dramatically during September throughout the Northern San Joaquin Valley, but don't start celebrating yet.
Experts warn that the decline was caused by a change in state law that simply may have delayed -- not stopped -- foreclosures.
Whatever the result, statistics from ForeclosureRadar show Senate Bill 1137's impact has been striking:
Notices of default, the first stage of the foreclosure process, fell 62 percent in Stanislaus, San Joa-quin and Merced counties in September compared with August.
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Notices of trustee sale, the last warning in the process, fell nearly 47 percent.
Foreclosure sales dropped 19 percent.
The law, which took effect Sept. 8, makes lenders meet strict homeowner notification requirements before they can start the foreclosure process.
"Clearly, SB 1137 has had a huge impact on notices. Only time will tell if the impact is beneficial or only delays the inevitable," said Sean O'Toole, founder of ForeclosureRadar, which tracks California foreclosures.
Mortgage defaults have devastated the region's real estate and financial industries, making the Northern San Joaquin Valley the foreclosure capital of the nation.
In Stanislaus County alone, more than 10,000 homeowners have defaulted on $3.44 billion worth of mortgages during the past two years, according to ForeclosureRadar statistics.
To ease the crisis, Senate Bill 1137 requires homeowners be told they can get free financial counseling to help them avoid foreclosure.
"We've had a 96 percent increase in inbound call volume during the last five weeks," said Martha Lucey, president of ByDesign Financial Solutions. Her nonprofit housing counseling service is certified by the U.S. Department of Housing and Urban Development to serve Stanislaus, San Joaquin and Merced counties.
Lucey is optimistic that with more homeowners seeking help, fewer may end up losing their homes.
"But we haven't seen any dramatic movement in workout success" during mortgage default negotiations with lenders, Lucey said. "If workouts aren't done, then SB 1137 may just be delaying foreclosures."
Modifications not required
The law was designed to encourage lenders to modify loans rather than foreclose them, but it doesn't require deals be made. It does, how-ever, make lenders contact homeowners before starting the foreclosure process, and it increases the waiting time after contact is made.
"We expect SB 1137 to have no long-term impact beyond delaying the foreclosure process for homeowners and slowing the overall recovery," O'Toole said. "Given the significant negative equity now occurring in most California foreclosures, modifying loans to affordable levels either requires large principal balance reductions or extending the unsustainable teaser rates that created the foreclosure crisis in the first place."
O'Toole said that if lenders start reducing the principal balances owed on many loans, then "they are likely to encourage nondefaulting homeowners to default in the hopes of securing similar reductions."
That ultimately would increase defaults, not decrease them as intended, O'Toole predicted.
Chad Costa, a Modesto real estate broker who specializes in selling previously foreclosed, bank-owned property, also predicts that the new law won't help much. He said the regulations are "just delaying when those assets will hit the market."
He expects the result will be a surge in foreclosures by the end of the year.
"The silver lining here is that this area is now more affordable. Keep in mind there are a lot of buyers that have been unable to buy a home until now," Costa said. "The challenge is that there are fewer first-time home buyer loan programs due to the credit crunch."
Costa said sales are swift for homes that are priced right, such as those less than $200,000.
Of the bank-owned properties he represents, Costa said he has more than 120 offers in negotiations to buy 56 properties. But he has 51 other properties for sale that don't have any offers to buy.
Bee staff writer J.N. Sbranti can be reached at firstname.lastname@example.org or 578-2196.