New America Media

    Ethel Gist bought her dream house and planned to retire to Antioch, Calif. Instead, the 70-year-old lost the house during the height of the foreclosure crisis, and now rents a place with her daughter and two grandchildren.

    After he lost his three-bedroom home in East Los Angeles, Rene Lopez says his world has “shrunk.” He and his family of seven are crammed into a two-bedroom apartment. Lopez, who lost his job as a jeweler, is struggling to find work in a restaurant.

    Dianne Pinkston, a self-employed tax preparer in Los Angeles, inherited the family house, only to lose it to foreclosure soon after. Pinkston still has a debt of $150,000 to pay off, but says she finds solace in her family and friends, and the fact that after the ordeal, she’s “still standing.”

    Gist, Lopez and Pinkston are the faces of foreclosure in California — ground zero for the housing crisis. Since the start of the housing crisis, the Golden State has the dubious distinction of being first in the nation in the number of total foreclosures – more than half a million completed, based on data from Oct. 2008 to June 2011 from RealtyTrac.

    The pace of foreclosures ebbed following the eruption of the “robo-signing” scandal, in which loan servicers approved foreclosures without looking at the underlying documents. Banks halted foreclosures over the last several months temporarily to overhaul their protocols.

    But foreclosures are expected to pick up in the months ahead. An estimated 1 million foreclosure actions that should have taken place this year will now happen in 2012, according to Daren Blomquist, director of marketing and communications with Irvine, Calif.-based RealtyTrac.

    “That’s not because 1 million people have avoided foreclosure over the long term, it’s because the process has slowed,” he said, noting that the time it takes to complete a foreclosure has doubled in the last four years from 154 to 318 days.

    Bottom line: the foreclosure crisis is far from over.

Dimensions of California’s housing crisis

    In California, an estimated 1.2 million homeowners have lost their homes to foreclosure since 2008. An additional 800,000 homes are expected to receive foreclosure notices by 2012, according to a report by RE-Fund California Campaign, citing data from RealtyTrac and Moody Analytics.

    Despite the wave of foreclosures, few policies at the state or federal level are giving homeowners relief. The federal Home Affordable Modification Program (HAMP) is the main policy put forth to staunch the foreclosure crisis. It has largely failed, as banks have modified a mere fraction of the loans of troubled homeowners. To date, the number of permanent modifications through the program hovers around 730,000. In California, while 1.2 million homeowners have faced foreclosure in the last three years, only 122,577 borrowers received permanent modifications under the program.

    California’s foreclosure crisis has decimated urban centers and swaths of the Central Valley. One in 51 housing units received a foreclosure filing during the first six months of the year, according to RealtyTrac. The state also registered the highest number of foreclosure filings in the nation for the same time period.

Minorities in the state are being hit the hardest.

    According to research by Dr. Carolina Reid of the Federal Reserve Bank of San Francisco, minorities have been disproportionately impacted by the foreclosure crisis. Looking at a sample of loans originated in 2005, she found that approximately 12 percent of Hispanic borrowers, 8 percent of African American borrowers, 7 percent of Asian borrowers, and 5 percent of white borrowers were in default.

    The higher percentage of loans in foreclosure for minority borrowers is in part explained by the fact that they were more likely to receive subprime loans, even after controlling for differences in borrower and neighborhood risk characteristics, according to Reid. For example, in California, Reid found that Hispanics were 7.9 percent more likely than whites to get a subprime adjustable rate mortgage over a prime, fixed rate loan; the respective figures for blacks and Asians were 6.7 percent and 2.1 percent.

    In California, half of foreclosures (48.2 percent) were of Latino borrowers, according to a 2010 study by the Center for Responsible Lending.

State policies offer little relief

    Since the start of the foreclosure crisis, the state legislature passed several bills to help troubled homeowners. Much more help is needed, housing advocates say.

    “[There is] no good reason for the legislature not to jump on the bandwagon, at this of all times, to support legislation that would help to limit some of the abuses that homeowners are experiencing. It’s shameful behavior [by politicians],” said Maeve Elise Brown, director of Oakland-based Housing and Economic Rights Advocates, a statewide nonprofit legal service and advocacy organization that served 1,600 homeowners last year.

    Housing advocates point to SB 94 — a bill passed in 2009 that prohibits anyone assisting in a mortgage loan modification from charging up-front fees — as a critically needed measure. The large gap between borrowers seeking loan modifications and those actually receiving them has spurred mortgage rescue scams that find and exploit vulnerable homeowners. Brown says by the time homeowners contact her organization, many have already handed over money to mortgage rescue scammers. “Some gigantic percentage of clients paid a thousand bucks to $9,000 bucks” to a scammer, she said.

    Another 2008 bill, SB 1137, required servicers to make contact with borrowers before initiating foreclosure action. The law was key because early on, servicers weren’t “answering the phones” when borrowers called, said Paul Leonard, California director of the Center for Responsible Lending. Now, he says, the needs of borrowers have shifted. He pointed to the “dual track” problem, referring to a practice where banks initiate foreclosure proceedings while they are negotiating a loan modification.

    Senate Bill 729 would have addressed that issue, requiring banks to give homeowners an answer on loan modification applications before initiating foreclosure proceedings. This May, state legislative committees failed to clear SB 729 and two other foreclosure-related bills. Assembly Bill 1321 would have cut paperwork delays by requiring counties to record foreclosures within 30 days, and Assembly Bill 935 would have required banks to pay a $20,000 fee on every foreclosure to recoup economic losses by local and state governments.

    The legislature did move to protect another group caught in the foreclosure crisis: renters. This session, the legislature enacted laws to protect tenants against utility shutoffs (SB 120) and protects tenants’ credit if they are evicted because of foreclosure (SB 1149).

    At least 38 percent of the foreclosed units in California were occupied by renters in 2010, which means that about 200,000 residents were displaced, according to a January 2011 report by the San Francisco-based Tenants Together, a statewide renters’ rights organization.

    The state legislature isn’t the only government body taking on mortgage fraud. California Attorney General Harris last month launched a statewide mortgage fraud strike force to investigate illegal financial practices at the community and corporate level. But her office lost $70 million as part of statewide cutbacks, a shortfall certain to affect the strike force and its capacity.

    News of the loss of funding for the project coincided with news of an $8.5 billion settlement between Bank of America and a group of investors who bought mortgage-backed securities.

    The deal is a “model of a settlement agreement for other banks and other kinds of investors,” said the Center for Responsible Lending’s Leonard. California could mount a similar investigation and lawsuit, he added, but doing so requires intensive resources that the attorney general’s office may now lack.

Social impacts of foreclosure unknown

    Statistics on lost homes and lost dollars are relatively easy to track. The emotional toll on those who lost their homes is not as well documented, said Brown, of Housing and Economic Rights Advocates. “Some people are not going to play anymore. There’s a mistrust of the credit system, and perhaps rightfully so. I’m interested to see the lingering effect that has.”

    Scholars need to also examine the impact of the “historical stripping of wealth from communities of color” as a result of the housing crisis, Brown said. “The impact is gigantic, for communities of color generally get paid less money than somebody who is Caucasian, it takes longer to build up that,” she said.

    The impact of foreclosures on children is also under-examined, she said. An estimated 311,900 California children were impacted by the foreclosure crisis, according to a 2008 report by the bipartisan advocacy group, First Focus. The figure does not include children evicted from rental units. Children who are uprooted excessively, studies suggest, don’t perform as well in school and are more likely to develop behavioral issues.

    As California’s foreclosure epidemic continues to unfold, Brown said, state and local governments need to ramp up efforts to address community-level impacts of foreclosures.

    She said the thousands of foreclosed and abandoned homes in Ohio have become a breeding ground for methamphetamine labs and that communities in California are starting to see a similar rise in blight and crime. The state legislature has already moved on that front, passing SB 1137 in 2008, which allows cities to fine banks up to $1,000 per day for leaving foreclosed properties vacant and blighted.

    That money might come in handy. According to the RE-Fund California Campaign (a collaborative including the California Reinvestment Coalition, SEIU, and community organizations), the price tag of the foreclosures on California homeowners, state and local governments is a whopping $650 billion. The study found that for every foreclosed property, the loss to the surrounding community is nearly $340,000; the cost in property taxes is more than $2,000; and the cost to local governments is about $20,000.