“Foreclosure Prevention and Intervention:

The Importance of Loss Mitigation Strategies in Keeping Families in Their Homes”

My name is LeFrancis Arnold, and I am the owner and broker of LeFrancis Arnold Consulting, a Lynwood, California firm specializing in all aspects of real estate, including FHA loans.  I have been a member of the California Association of REALTORS® and the National Association of REALTORS® for over 30 years and have been privileged to serve on a number of policy committees for both organizations.   

The California Association of REALTORS® is the largest state trade association in the country with over 200,000 members.  C.A.R.’s members are on the frontline of California’s real estate market and have witnessed first hand the devastating effects mounting foreclosures can have on families and a community.

Over the last two years the California housing market has experienced a significant correction. From a peak level of sales in both 2004 and 2005 of 625,000 existing homes sold, sales have declined to an expected 350,000 this year. At the same time the rate of foreclosure in the state has gone from historic lows to a return to the highs experience in the mid-1990’s.  Personally, I have seen more than a 40 percent decline in my business, while my peers in other parts of the state have experienced even larger declines.

Many people have asked me, “What is the cause of this downturn?”  With more than 30 years in this business I can tell you no one single factor is to blame and therefore, no one single solution will help ease the current market downturn.  Instead, a broad approach must be taken where all the players in the real estate industry do their part, including REALTORS®.

Now more than ever, REALTORS® are working to help keep families in their homes and maintain strong communities.  As the first point of contact in the home buying process; often it is the REALTOR® that homeowners turn to for help when in trouble.  In these cases, I always work to keep the homeowner in their home.  However, every situation is unique and unfortunately foreclosure is sometime unavoidable.

As the market began its current downturn in 2006, C.A.R. began taking aggressive steps to provide the best tools to our members, including the large pool of recently licensed REALTORS® in California who have never been through a market like this.  Many of these agents have never performed a short sale, communicated with lenders on behalf of troubled homeowners to workout a loan, worked with lenders on a REO sale, or sold a foreclosed property.  As such, C.A.R. now offers both a short sale and foreclosure class to members and nonmembers.

But REALTORS® can’t do it alone.  Homeowners, lenders and the government all must do their part to reduce foreclosures. 

A homeowner in trouble must be educated and encouraged to reach out to a consumer credit counselor, their REALTOR®, or their lender as early as possible.

Lenders must change their policies so borrowers are not required to be delinquent on their mortgage payments before a troubled loan can be worked out.  Many of my fellow REALTORS® have described frustration when contacting lenders on behalf of homeowners who realize that they will not be able to make their mortgage payments when their loans reset.  They are turned away and told “the borrower must be delinquent before a loan workout can be discussed.”  Additionally, lenders must address the current staff shortage in loss mitigation departments, which are presently overwhelmed.

For the government’s part, the Senate needs to pass, and the President must sign, legislation to reform government housing programs intended to keep America’s housing markets stable.  This includes FHA and GSE reform, increased FHA and GSE loan limits in high cost areas, better homeownership opportunities for America’s veterans, mortgage debt cancellation relief, and subprime mortgage reform that balances strong consumer protections with the need to maintain the flow of capital to the housing market.

C.A.R. supports and applauds Governor Schwarzenegger and the lenders and servicers who have recently worked out an agreement to fast-track loan modifications for distressed subprime mortgage borrowers who are current on their loans.  Proactive efforts such as this are an example of what is needed to stem the tide of foreclosures and ease the current downturn.

In closing, I’d like to share the story of a Mission Viejo family of four who lost their home.  This family was working with their agent and their lenders loss mitigation department to get a short sale approved by the investment firm who purchased their loan.  When the short sale was finally approved, it turned out the investment firm’s foreclosure department had simultaneously approved foreclosure on the loan.  Therefore, even after the short sale was approved, this family needlessly lost their home because of a lack of coordination and miscommunication. This is a simple example that illustrates a much larger and more complex problem --– but it can be solved.  

I invite your comments and questions.

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