Re: Chuck Wagner's Aug. 1 letter, "Foreclosure's riches":
Wagner was right on about foreclosures.
Camarillo is not the only area that piggy-backs loans at purchase. Refinancing of homes has, in many cases, caused foreclosures by borrowers who had little or no incentive to remain in their homes.
The purpose of the 80 percent mortgage was to protect lenders by causing borrowers to invest 20 percent of their own money, creating a built-in incentive for the borrower to keep the home and avoid loss of the investment. The 20 percent down also gave the lenders a cushion in the case of original appraisal values of homes decreasing.
However, obtaining financing of 100 to 103 percent or more at purchase, I feel, was a genuine tool offered to borrowers by lenders to fight the high prices in California. Unfortunately, it has backfired for many honest people.
Refinancing over and over again to get cash out by the borrower, which was allowed and encouraged by lender, has backfired for lenders. And, as Wagner states, "you and I" are paying for the mess.
A little known fact about real estate loans is that California is a "deficiency judgment " state. Once a borrower obtains financing, which is placed on real property and is not part of the original purchase, the borrower is subject to a deficiency judgment in the case of foreclosure. A lender having to "take the property back" can attempt to recoup the deficiency -- the difference between the appraised value of the property and the balance owed at foreclosure -- from the borrower.
Lenders should have enforced the deficiency judgment on borrowers who abused the system from the beginning. Lenders should have been required to disclose this law to borrowers. Then, maybe, some foreclosures would have been avoided.
-- Patty Smith, Oxnard