California foreclosure study is less damning than it appears


The “Foreclosure in California” report released by the San Francisco Assessor-Recorder this week seemed to confirm all those bad things we’ve heard about mortgage lenders.

The report identified “one or more irregularities in 99%” of the foreclosed loans it reviewed. Sounds bad. But that doesn’t necessarily mean that these homeowners were making payments on time and unfairly booted from their homes without cause.

Many of the irregularities stem from the fact that lenders routinely sell the loans they write to other firms and investors, the report showed. They just don’t always fill out the proper paperwork in assigning these loans to the new note holders.


That can lead to confusion over who had the legal right to process the foreclosure. But it doesn’t mean the foreclosure itself was unwarranted.

As the report notes: “Many mortgage industry advocates correctly point out that [state foreclosure law] deals with technical requirements and that inadvertent violations should not provide windfall remedies to reckless borrowers.”

That point is significant given that the median home value in Southern California slipped again last month, to $260,000 – down from $270,000 in December 2011. Values are now on par with what they were in 2002.

Reckless lenders who sold loans to people who didn’t qualify for the terms are one reason that home values are back to where they were a decade ago. But reckless borrowers who took those loans, making a bad bet that home values would continue soaring, are certainly another.

By the way, the title “Foreclosure in California” itself may be a bit of an exaggeration. The study’s authors looked at just 382 loans, all of them in the city-county of San Francisco.


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