Foreclosures: California Officials Acting To Stem Foreclosures

Posted on December 3rd, 2007 by saman

California Assembly Speaker Fabian Nunez (D-Los Angeles) has urged the Governor and the legislature to immediately deal with the ever-increasing sub prime mortgage foreclosure crisis. He also joined with Democratic legislators to propose a series of new consumer protective measures. Nationally, there are five out of the top-ten foreclosure areas in California cities including (in priority order) Stockton, Riverside-San Bernardino, Sacramento, Bakersfield and Oakland. Overall, the state of California has the highest number of nationwide foreclosures at this point in time.

Speaker Nunez asked Governor Arnold Schwarzenegger to request a special session of the state legislature to deal with the crisis. Nunez is also quoted as saying, “If you think we are in trouble now, just wait and see what happens.” Schwarzenegger has already taken positive steps in California’s Inland Empire by beginning a $1.2-million campaign to educate borrowers and lenders in finding ways to keep interest rates affordable for troubled homeowners.

At the same time, federal officials have been focusing on finding solutions at the national level. They have expressed their fears that continuing foreclosures, if left, unchecked, could ramp up the decline in home prices that could easily lead to an even deeper cycle of losses for borrowers, lenders and investors and also have an increasingly negative effect on the overall US economy. Among the ideas being discussed are encouraging lenders to extend the low “teaser” rates on adjustable rate mortgages (ARMs) to allow borrowers additional time to refinance; and shifting up-to-date buyers with ARMs into fixed-rate loans before they enter default.

These proposals from the fed are quite similar to the ideas provided by Governor Schwarzenegger last week after he met with four large California lenders including the huge Countrywide Financial Corporation. He has also proposed a plan to educate the state’s homeowners about services that could help them keep their homes through refinancing or financial counseling. Right now, one out of every eighty-eight homes in California is already in foreclosure and the projected figures for 2008 are even grimmer. In Sacramento and the Inland Empire, that figure is much higher with one out of every forty-three homes being foreclosed.

California’s Democrats are still considering the wisdom of providing $10-million in funds for independent counselors to aid homeowners in their negotiations with lenders. They would also like to generate a standardized method, with which lenders could restructure mortgages so that homeowners can continue paying the low rate they have, by forestalling interest-rate resets of sub prime ARMs.

Finally, the legislators’ also have proposals to check predatory lending activities by banning the so-called yield-spread premiums, the bonus that lending institutions pay to mortgage brokers. Many contend that this ‘bonus’ practice is what led brokers to arrange risky, or high-interest rate loans to some buyers when they could have qualified for safer, lower-interest loans. They would also ban prepayment penalties, which increase the cost of refinancing.

California lenders have indicated that while they recognize the seriousness of the situation, they remain guarded about the Assembly’s plans.