Santa Cruz Properties Affected By New Legislation

Santa Cruz Real Estate- New real estate guidelines and incentives announced Friday by the Obama administration are designed to encourage banks and investors to reduce the principal balance owed for borrowers who owe more than what the house is worth.

The program is voluntary. About 10 percent of 3.4 million eligible borrowers are in a three-month trial real estate loan modification program, according to a database kept by watchdog organization Pro Publica; about 4.9 percent have obtained a permanent modification.

Santa Cruz Real estate agents predict the new federal guidelines will help some people who own property in Santa Cruz County but probably not many.

Some of those who get their loan modified may have trouble paying in another year or two. A report issued Last week by the two federal agencies, the Office of the Comptroller of the Currency and the Office of Thrift Supervision suggests this.

With the write down, the new mortgage cannot exceed 115 percent of the home's value.

That could be a sticking point.

California has 2.4 million underwater mortgages, the most of any state, according to First American CoreLogic, a real estate information company that operates nationwide.

The percentage of these upside down mortgages grew from 34.7 percent to 35.1 percent between Oct. 31 and Dec. 31, the company reported.

In Santa Cruz County, the percentage of upside down homeowners is smaller but the numbers are growing. 20.2 percent of Santa Cruz Homes were underwater Dec. 31, compared to 18.6 percent Oct. 31, with the numbers expanding from 10,106 to 10,962, according to First American CoreLogic.

Once negative equity reaches 25 percent, when the homeowner owes 25 percent more than what the home is worth, homeowners tend to default on payments at the same rate as investors, a First American CoreLogic analysis found.

"Negative equity is a significant drag on both the housing market and on economic growth," said Mark Fleming, chief economic with First American CoreLogic. "It is driving foreclosures."

So far this year, 421 default notices have been issued in Santa Cruz County, outpacing sales by 10 percent, which means in another five to 10 months many of these homes will be on the market at discounted prices.

"The supply pool is filling quicker than it's draining, and the mid-to-high end market continues to fall," according to real estate analyst who predicts California will see a "double dip" in prices.