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The Riverside-San Bernardino-Ontario region ranked as the 6th highest in foreclosures in the nation (1 out of every 30 homes had a foreclosure-related filing) in the 3rd quarter of this year. The total combined number of 3rd quarter filings (default, bank repossessions and trustee sales, all separate sequential points in the foreclosure process) was 48,416. Despite the high number, the 3rd quarter saw an 8% decline from 2nd quarter.

Dataquick reported 21,946 notices of default (NOD) for Riverside and San Bernardino counties in the 3rd quarter of this year.

The decline is attributed to the California foreclosure-moratorium and loan modification programs. Over 500,000 mortgages have been modified on a trial basis under the federal Making Home Affordable Program with an unknown number of them in California. The question is: will those homeowners stay current under their modification?

first tuesday take: No, most of those homeowners will not stay current. They will redefault and be eventually foreclosed on.

So foreclosure-moratoriums amount to a temporary stay while relocating to a new home, and the lender collects nothing in the interim, except some interest on those few modifications entered into in California.

Most California homeowners looking for a “time out” while they try to sort out what financial decisions to make, find their homes have a loan-to-value (LTV) ratio greater than 125%.  Thus, they do not qualify for the national “extend and pretend” loan modification programs. Most homeowners with modified loans redefault, because in reality the modification only increases their mortgage debt.  More debt in an already upside-down financial condition leaves the homeowner with a negative equity which will take a decade of near-fruitless debt reduction before they will realize an equity sufficient to allow the property to be sold, assuming the homeowner is actually employed with an income to continue to pay.

This means more property is waiting to spill over into the real estate resale market, since the federal government removed the one saving grace of homeowners: judicially ordered cramdowns in bankruptcy courts.

For more information regarding the Federal government, and the drama of personal bankruptcies, see the January 2009 first tuesday article, Bankruptcy’s often overlooked tie to homeownership, to be released in next month’s edition.

For more information regarding California as an antideficiency-nonrecourse state, see the [November 2009] first tuesday article, California homeowners: exercising your right to default.

Re: “Inland foreclosure rate decreases but is sixth-highest in U.S.,” from The Press Enterprise.