Mortgage Insights Blog

Santa Clara County saw big declines in home foreclosures last month as a new state law took effect and banks tried to work out terms for borrowers struggling with mortgage payments.

The county posted a 55 percent drop in September in notices of default, the first step in the foreclosure process. Foreclosure sales in the county were down 24 percent — double the statewide drop. That still represents a more than threefold increase from September 2007.

The drop appears to be partly caused by a state law that went into effect in September. SB 1137 requires lenders to make a series of attempts to contact homeowners and then wait 30 days before filing a foreclosure notice. It also encourages lenders to work out new terms with the borrowers to keep them in their homes, which banks have already begun doing.

The Federal Deposit Insurance Corp. is aggressively modifying the subprime loans of Pasadena-based IndyMac, which it took over in July. HopeNow, a joint effort by lenders, also has begun helping distressed mortgage holders work out better loan terms. And Bank of America last week announced an $8.4 billion program to modify subprime mortgages issued by Countrywide Home Loans, which it took over in July. Of that, $3.5 billion will be spent modifying the loans of 125,000 California borrowers.

"I think every loan servicer is under immense pressure now to be more aggressive in their modifications,'' said Dustin Hobbs, spokesman for the California Mortgage Bankers Association.

With the law in place, notices of default dropped 61.8 percent statewide, according to Foreclosure Radar.

The figures for September resume the three-month decline of May, June and July in Santa Clara County in foreclosure activity. That was interrupted in August as lenders scrambled to file as many default notices as possible before the new law took effect.

Once lenders adjust to the law, default notices could rise again, though not quite to previous levels, according to Sean O'Toole, head of Foreclosure Radar.

Article by Pete Carey, Mercury News (Article Launched: 10/13/2008 05:28:14 PM PDT)