Put moratorium on foreclosures, state consumer coalition advises

Put moratorium on foreclosures, state consumer coalition advises

By Steve Lawrence

August 22, 2007

SACRAMENTO – Consumer advocates yesterday called for a moratorium on home foreclosures, warning that California is facing a tidal wave of foreclosures over the next year as more homeowners are hit with payment increases brought on by subprime loans and risky mortgages.

“The curve is really starting to go up,” said Alan Fisher, executive director of the California Reinvestment Coalition, a group of nonprofit organizations and public agencies that advocate for the poor and minorities. “We’re seeing just the beginning of a problem.”

He told the state Senate Banking, Finance and Insurance Committee that a six-month moratorium would give officials time “to figure out how to keep people in their homes.”

More than 46,000 California homes were in foreclosure in March and 76,732 more mortgage loans were seriously delinquent, the Mortgage Bankers Association estimates.

Witnesses warned the committee that the numbers would continue to grow into 2008 as more homeowners face higher payments because of adjustable-rate mortgages.

“By all accounts, the big spike in terms of subprime mortgages is coming in the fourth quarter of this year and the first three quarters of next year,” said Paul Leonard, director of the California office of the Center for Responsible Lending, a nonprofit group that advocates for homeowners. “California is clearly ground zero for this problem nationwide.”

Subprime loans are made to borrowers with shaky credit histories or those who cannot always document their incomes.

Fisher and Leonard called for the creation of a fund to assist strapped homeowners in certain situations and for increased state oversight of mortgage lenders.

“It’s not really about banning specific (mortgage) products, but it’s about putting standards in place . . . so borrowers have a fair shot in the mortgages they receive,” Leonard said.

Bob Gnaizda, policy director and general counsel for the Greenlining Institute, an advocacy group for the poor and minorities based in Berkeley, said banks should create a $10 billion national fund to cover the cost of moving subprime borrowers into more affordable loans.

Companies representing lenders said they try to work with borrowers to rearrange their loans to avoid foreclosures but often have trouble reaching borrowers to discuss new terms.

“There really is no good outcome from a foreclosure action,” said Shane Ross, senior vice president of account management for Litton Loan Serving. “The lender loses money usually. We want to avoid foreclosure at all cost.”

Martha Lucey, president of ByDesign Financial Solutions, a consumer counseling service, said half of the homeowners having trouble making mortgage payments don’t contact their lenders to see if there are alternatives to foreclosure.

“They’re paralyzed,” she said. “People don’t realize that there are options out there.”

She said her organization has been hit by a “surge in calls” from delinquent homeowners seeking help, but it lacks the funding to provide it.

She said financial support from the U.S. Department of Housing and Urban Development covered “less than two months of activity.”

“We’ve reached out to the lender community (for funding) but have received a lukewarm response,” she said.

Representatives of several state agencies that have some role in regulating financial institutions said they have stepped up their efforts through town hall meetings and a Web site to make borrowers aware of their options. They say they are encouraging lenders to work out better loan deals with potentially delinquent subprime borrowers.

But several state senators suggested the agencies should be doing a better job of oversight to prevent unscrupulous practices by lenders, real estate agents and others.

“It’s an uphill battle for us, and at times we’re chasing our tail,” Jeff Davi, the state’s real estate commissioner, said when asked about efforts to corral shady real estate agents who move from brokerage to brokerage.

The committee’s chairman, Sen. Mike Machado, D-Linden, said past budget cuts were partly to blame.

“We’ve taken away a lot of the regulatory staff they’ve had,” he said.

Machado has a bill in the Assembly that would require state-regulated lenders to determine if borrowers can afford to pay the full cost of loans when they reset to higher interest rates, not just the low initial rate.

He said he had not ruled out additional legislation to control lending practices.

“I don’t think homeowners should be preyed upon,” he said after the hearing. “That’s exactly what’s happening. They’re preying upon people who don’t know (what they’re getting into).”

Asked about state funding to aid embattled homeowners, he said money might be available in some regulatory agency budgets that could be used to help fund homeowner counseling groups.

As for a moratorium on foreclosures, Machado said he thought a homeowner’s complaint to the state against a foreclosing lender would trigger an investigation that would have the same effect as a moratorium.

http://www.signonsandiego.com/uniontrib/20070822/news_1b22subprime.html