It wasn’t that long ago that the economy was red hot, and the real estate market in California was even hotter. We were in the midst of the real estate bubble and my wife and I were looking at buying a house. The Realtor we were working with introduced us to his office’s in-house lender who proceeded to pre-qualify us for a million dollar loan.

My wife and I went home and laughed to ourselves that he must be off his rocker to offer a million dollar purchase money loan to us at our income level, even if we were able to get gifts from our parents to come up with 20 percent down.

Thankfully, we didn’t take the bait. But a lot of California homeowners did take it hook, line and sinker, and now sinking, or sunken, is a good description of where many of them are today. The home they bought (which they really couldn’t afford), is now underwater, under the heavy weight of massive negative equity that they will never dig out from. These actions resulted in the tidal wave of foreclosures that were just the first round to hit the state, followed later by a second wave resulting from extremely high unemployment numbers. Those foreclosures are still plaguing the state to this day.

So, now a legislative package has come along comprised of six bills, which was touted as the California Homeowner Bill of Rights. Sponsored in large part by California Attorney General Kamala Harris, the package was expedited through the legislative process and was signed into law by Gov. Jerry Brown on July 11, and will take effect on Jan. 1, 2013.

Not surprisingly, the new law is not popular with some people — particularly those in the lending and mortgage servicing industries — for a number of reasons, all of which are pointed out in a report from Beacon Economics titled, “Foreclosure Reform in California: An Economic Analysis.”

Created for the California Bankers Association, the California Credit Union League, the California Mortgage Association, the California Mortgage Bankers Association, MERSCORP Holdings, Inc. and the United Trustees Association, the report’s authors argue that the new law:

• Will not help California’s housing market recovery
 
• Will reduce home values
 
• Is unlikely to help borrowers who are behind on payments
 
• Could end up costing owners who are in financial trouble on their mortgages
 
• Could actually increase the number of foreclosures in the state
 
• Will reduce the availability of credit for future homebuyers

Supporting their arguments by a plethora of research (including numbers from RealtyTrac), the report states that extending the foreclosure process timeline will do nothing to help alleviate the problem. It also seems to squarely place the blame for homeowner woes on their own back for abusing the system by taking out loans they should have known they could not afford.

We’d be interested in hearing what you think about all this. Take a look at the report and give us your comments.

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