SOURCE: United Trustees Association

United Trustees Association

June 28, 2012 15:29 ET

United Trustees Association Warns Foreclosure Regulations Will Hurt California's Housing Market

A New Study Prepared for the UTA and Other Groups Sites Vastly Different Foreclosure Regulations and Outcomes in Nearby States

IRVINE, CA--(Marketwire - Jun 28, 2012) - The United Trustees Association (UTA), whose members serve as trustees under deeds of trusts (i.e., mortgages), today warned that stringent, nonjudicial foreclosure regulations being considered in California's legislature could stifle the state's housing-market recovery.

Targeting lenders and a range of mortgage service providers, including trustees under deeds of trust, the proposed California Homeowner Bill of Rights "will ultimately harm, not help, the vast majority of California homeowners," according to a new study by Beacon Economics LLC addressing the state's foreclosure crisis.

"California's fragile housing recovery cannot withstand new regulatory and legal hurdles which could have unintended consequences," said T. Robert Finlay, UTA president. "Beacon's study reveals that California's nonjudicial foreclosure model is actually working, allowing for a faster turnaround than might otherwise be possible. It would be prudent to more strictly enforce and improve the current process than to succumb to layers of new policies driven by politics."

Led by noted economist Christopher Thornberg, the Beacon study concluded that the Homeowner Bill of Rights overreacts to a market that is showing signs of recovery independent of new government intervention. Specifically, the study concluded the following about California's housing market:

  • The worst may be over. The number of distressed mortgages is down significantly from its high of three years ago.
  • New legislation would reduce home values. The study finds that housing markets with longer foreclosures periods result in greater discounts on foreclosed units when banks eventually sell them driving real property values lower.
  • Increased losses among mortgage lenders will result in higher down payments, tougher credit standards for credit-worthy consumers and an even slower market recovery.
  • There is no evidence that states with longer foreclosure processes have a greater percentage of loan modifications or fewer delinquent borrowers in foreclosure. The study suggests that the opposite may be true. Longer foreclosure periods encourage more homeowners to default on their loans, knowing that they can live in their property rent free for a longer period of time.
  • The proposed California legislation is misdirected. The study suggests that the focus should be on preventing a future breakdown in credit standards, not condemning the current foreclosure process.

To reinforce its points, the study contrasted housing-market outcomes in states with judicial foreclosure and nonjudicial foreclosure processes, and cited a 2011 report stating that foreclosure timelines are at an all-time high -- 692 days in judicial states and 567 days overall. The longer the foreclosure period, the greater the discount on foreclosed units, the report concludes.

Housing market outcomes in two of California's neighboring states, Nevada and Arizona, both hit hard by unemployment, highlight this trend. According to the seasonally adjusted Home Price Index by S&P/Case-Shiller, the value of residential real estate in Phoenix -- governed by Arizona's unchanged nonjudicial foreclosure process -- grew from 103.33 in January 2012 to 108.51 in March 2012. In Las Vegas, where the Nevada Legislature has added numerous layers to its nonjudicial foreclosure process since 2009, the index increased less than 1 point -- from 90.15 to 90.75 -- during the same period.

"Industry data shows that the more complicated the foreclosure process becomes, the more that delays and cost increases can compromise the housing market, and ultimately hurt consumers and the economy," said Finlay. "The delay in foreclosing caused by additional regulation can also add to neighborhood blight as houses sit in foreclosure for longer."

The UTA believes that lawmakers' misunderstanding about the current foreclosure protocols is driving some of the nonjudicial foreclosure proposals in the state legislature. It pointed to a critical report published in February 2012 by the City and County of San Francisco's Office of the Assessor‐Recorder. The UTA subsequently audited the report, finding significant discrepancies between the findings in the assessor-recorder's report and actual documents recorded with his office. In many instances, the UTA found no errors where the assessor-recorder's report claimed there were many.

About the UTA
Founded in 1968, the United Trustees Association (UTA) is a member-based organization serving professionals -- including trustees, attorneys and loan servicing professionals from title companies, financial institutions, law firms and independent companies -- acting as trustees under real property deeds of trust. UTA Members are current on relevant case law, attend the best educational meetings and trade shows in the industry, and collectively advocate before state legislatures. For more information, please visit, or contact Executive Director Richard Meyers at (949) 260-9020, or

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