Stopping Foreclosure: California Gone Wild

California seems to be pulling out all stops in the war against foreclosure but is it enough or could some new moves actually do more harm than good?

There is no question that California seems to be leading the battle to stop the foreclosure but are some of the new laws being signed in going too far? Proposals from Stockton and San Bernadino that call for using eminent domain to seize mortgages and regulations preventing borrowers from having to pay back more than their homes are worth could certainly make lending in California much less attractive. That could certainly put the brakes on a recovery or at least make it much tougher and more expensive to get a home loan in CA.

Other new regulations are aimed at preventing mortgage lenders from pursuing foreclosure proceedings while working with borrowers on loan modifications or short sales. This may sound fairer to homeowners, some of whom have had their homes swept out from under their feet even while being told by their lenders help was underway. However, this could obviously also mean mortgage lenders are less likely to entertain helping borrowers if they have to stop foreclosure and drag out the process. In fact real estate investors in areas like Sacramento are already reporting that banks are choosing to pursue foreclosure sales as it is enabling them to net more money than permitting short sales.

Exactly how this will all play out will have to be seen over the next few months but there is no question that this may be the most prudent time for homeowners to sell and for buying a home before lenders get tougher on credit and pursuing foreclosures. With interest rates and home prices in California so low there is a lot of demand for buying homes but that could slow if mortgages are no longer available.