California Home Foreclosure Crisis More Severe than Previously Thought
California Political Desk
May 20, 2008
SACRAMENTO – Assemblymember Pedro Nava, Chair of the Assembly Banking and Finance Committee and Assemblymember Ted Lieu, Chair of the Assembly Rules Committee today announced the release of the California Research Bureau´s Report titled, "Foreclosures in California-The current housing crisis is more severe than previous corrections." (Report Attached)
The Assembly Banking and Finance Committee asked the California Research Bureau (CRB) in February to conduct research into the number of housing foreclosures in California and to publish periodic updates during the year in order to assist the Committee and the legislature in addressing the housing foreclosure crisis.
"This report provides important information regarding the breadth and depth of the housing crisis in California," said Assemblymember Nava, Chair of the Assembly Banking and Finance Committee. "Families throughout the state are clearly in crisis and having trouble staying in their homes. We need to make sure that the legislature takes appropriate action to help those in need."
"California is bearing the largest brunt of the housing crisis and families are losing their homes in record numbers," said Assemblymember Ted Lieu, Chair of the Assembly Rules Committee. "This report shows that federal regulators are failing us and that is why it is necessary that states like California take the lead in addressing this issue."
The California Research Bureau (CRB) foreclosure report highlights the following:
The estimate of housing foreclosures in California, spanning the three years 2006 – 09, varies from 170,000 to 434,000. Therefore, foreclosures will affect between 3.0 and 7.8 percent of all home owners with mortgages in the state by 2009.
Since this housing crisis is much more extreme than previous corrections, the recovery may not follow the same path as previous recoveries. In fact, some observers are comparing this cycle to the one experienced during the Great Depression, since this is the first cycle since then in which home prices have fallen throughout the nation.
The current evidence suggests the buyers who bought at the peak in 2006 – 07, paid the most inflated prices, were more likely to avail themselves of subprime adjustable rate mortgages (ARMs), and may now be at risk of being in negative equity positions (upside down on their mortgages). A 20 percent drop in prices from their peaks could leave as many as 14 million households with negative equity 9 - 2.8 million households in California.
The percentage of foreclosures of all mortgages outstanding is higher for California than for the nation as a whole.
The Pew Center on the States study presents California´s policy responses to the housing foreclosure crisis and the responses of other states and suggests that the states and the nation could be doing more to address the problem. Commendably, California has taken action to modify loans, but the study suggests that California could be doing more to help those at risk of losing their homes by, for example, helping them avoid falling victim to fraudulent rescue schemes and providing them with more counseling.
The Moody´s Economy.com forecast is for 411,000 defaults in California in 2008, compared with 212,000 defaults in 2007. Defaults do not always lead to foreclosure, but many do. California had 15 percent of the defaults nationwide last year and is expected to have 20 percent this year.
The Assembly Banking and Finance Committee asked the California Research Bureau (CRB) in February to conduct research into the number of housing foreclosures in California and to publish periodic updates during the year in order to assist the Committee and the legislature in addressing the housing foreclosure crisis.
"This report provides important information regarding the breadth and depth of the housing crisis in California," said Assemblymember Nava, Chair of the Assembly Banking and Finance Committee. "Families throughout the state are clearly in crisis and having trouble staying in their homes. We need to make sure that the legislature takes appropriate action to help those in need."
"California is bearing the largest brunt of the housing crisis and families are losing their homes in record numbers," said Assemblymember Ted Lieu, Chair of the Assembly Rules Committee. "This report shows that federal regulators are failing us and that is why it is necessary that states like California take the lead in addressing this issue."
The California Research Bureau (CRB) foreclosure report highlights the following:
The estimate of housing foreclosures in California, spanning the three years 2006 – 09, varies from 170,000 to 434,000. Therefore, foreclosures will affect between 3.0 and 7.8 percent of all home owners with mortgages in the state by 2009.
Since this housing crisis is much more extreme than previous corrections, the recovery may not follow the same path as previous recoveries. In fact, some observers are comparing this cycle to the one experienced during the Great Depression, since this is the first cycle since then in which home prices have fallen throughout the nation.
The current evidence suggests the buyers who bought at the peak in 2006 – 07, paid the most inflated prices, were more likely to avail themselves of subprime adjustable rate mortgages (ARMs), and may now be at risk of being in negative equity positions (upside down on their mortgages). A 20 percent drop in prices from their peaks could leave as many as 14 million households with negative equity 9 - 2.8 million households in California.
The percentage of foreclosures of all mortgages outstanding is higher for California than for the nation as a whole.
The Pew Center on the States study presents California´s policy responses to the housing foreclosure crisis and the responses of other states and suggests that the states and the nation could be doing more to address the problem. Commendably, California has taken action to modify loans, but the study suggests that California could be doing more to help those at risk of losing their homes by, for example, helping them avoid falling victim to fraudulent rescue schemes and providing them with more counseling.
The Moody´s Economy.com forecast is for 411,000 defaults in California in 2008, compared with 212,000 defaults in 2007. Defaults do not always lead to foreclosure, but many do. California had 15 percent of the defaults nationwide last year and is expected to have 20 percent this year.
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