Governor Should Add Housing Crisis to Budget Agenda in Special Session, Coalition Urges
OAKLAND, Calif. – Gov. Schwarzenegger should make mortgage reform a key part of his efforts to address California's budget and financial woes, according to a coalition of consumer, research, and policy organizations. The groups maintain that the state's financial crisis will not abate until there is a real reduction in the number of mortgage foreclosures.
After vetoing the strongest of the Legislature's mortgage bills two weeks ago, the governor has scheduled a meeting with leaders of the California Senate and Assembly to discuss California's budget tomorrow.
"California is home to 1,300 foreclosures every business day, which are pushing housing prices down, eroding wealth from millions of homeowners and draining the state and local governments of critical revenue," said Norma Garcia, Senior Attorney for Consumers Union. "Something must be done to save our neighborhoods and stop the erosion of the economy. We urge Gov. Schwarzenegger to lead a bipartisan push to get foreclosures under control." The coalition proposes a comprehensive foreclosure and mortgage reform agenda including:
-- 180-Day Foreclosure Moratorium - We need to hit the pause button on
foreclosures until programs like FHA's new Hope for Homeowners
refinancing initiative gets off the ground and the federal
government's new $700 billion Wall Street bailout have had a chance to
reinvigorate mortgage markets.
-- Mandatory Affordability-Based Modifications - The governor should
demand that all servicers implement affordability-based modifications
such as the Federal Deposit Insurance Corporation (FDIC) is doing with
the IndyMac portfolio, and as Bank of America will be doing beginning
December 1, with some troubled Countrywide mortgages. These two models
make clear that wide-scale modifications are possible, and should be
mandatory to avoid more foreclosures and stabilize the economy.
-- Transparency and Accountability - The governor should collect and
report detailed data on each company's success in providing long-term
affordable modifications and foreclosures. The Governor has failed to
provide company-specific accountability for his previously announced
initiatives.
-- Special Session Mortgage Reform Legislation Modeled on AB 1830 - If
the Legislature goes into special session, effective mortgage reform
should be at the top of the agenda, starting with the carefully
crafted AB 1830. Assemblymember Ted Lieu's (D-Torrance) legislation
was a significant compromise between consumer and lending interests
and included key reforms, such as establishing that for all home
loans, brokers have a fiduciary duty to their clients and must put the
borrower's economic interests ahead of their own. Brokers would have
also been prohibited from steering borrowers to loans that are more
costly than what the borrower would qualify for. AB 1830 also would
have added to recent federal regulations by capping the size of
prepayment penalties, the expensive exit fee that traps borrowers in
subprime loans.
"California is at the epicenter of the foreclosure crisis," said Emily Rusch, Advocate with CALPIRG, "and it's not over yet. Without action, 200,000 option ARMs will lead to yet another huge wave of foreclosures. To protect California consumers and our economy, the governor and Legislature must act to prevent foreclosures in the short-term, and adopt reforms to prevent a crisis of this magnitude from ever happening again," Rusch said.
AB 1830, considered to be the centerpiece of the Legislature's mortgage reform bills, was vetoed by the governor two weeks ago. Other vetoed bills would have given homeowners better notice before an adjustable rate mortgage adjusted to a higher rate and would have strengthened the Department of Real Estate's oversight and enforcement of mortgage brokers.
"California's budget woes stem from the lack of revenue the state has been able to bring in trough property taxes, which can be directly attributed to the hard-hitting impact of the crisis to our state," said Ronald Coleman of California ACORN. "It is in Gov. Schwarzenegger's best interest to fix this problem for our state's economy and protect our families. So far, he has done virtually nothing and the problem continues to get much worse."