Tag Archives: foreclosures

AG’s Homeowner’s Bill of Rights Moves Towards Passage

Measures would protect Californians from some of the most egregious tactics of lending servicers.

by Brian Leubitz

Since Kamala Harris pushed for additional concessions in the mortgage fraud settlement, she’s been pushing in the Legislature as well. The “Homeowner’s Bill of Rights” would enshrine many of the substantive provisions of that settlement into California law.

The legislation would require large lenders to provide a single point of contact for homeowners who want to discuss loan modifications. It would prohibit lenders from foreclosing while the lenders consider homeowners’ request for alternatives to foreclosure. And it would let California homeowners sue lenders to stop foreclosures or seek monetary damages if the lender violates state law.

The protections would benefit all California homeowners, not just those whose mortgages are with the five banks that signed the national settlement in February. And many of the restrictions would become permanent, while those in the nationwide agreement will end after five years.

Attorney General Kamala Harris said the compromise legislation negotiated with lawmakers “is going to bring transparency and fairness to California homeowners in a way they’ve never had before.”(HuffPo)

This legislation most assuredly doesn’t go far enough. There have been compromises all along the way, but this is legislation that will benefit many, many Californians. It would be a big step forward.

The Courage Campaign is following the latest action on their twitter account. KQED’s Forum aired a show on the legislation this morning, that is embedded above or available here.

Proposed Foreclosure Settlement Would Benefit Wall Street, Not Main Street

by Art Pulaski, California Labor Federation

This week, the U.S. Department of Housing and Development (HUD) and the Big Banks teamed up to propose a multi-state settlement to address the foreclosure crisis. But based on the terms described in numerous media reports, the deal appears to be a settlement for the banks, not a settlement for the middle class. The people of California need real relief, not a quick settlement that lets the banks off the hook.

California is home to nine of the ten cities that were hardest hit by the foreclosure freefall. The two million working families we represent have been at the epicenter of this crisis. Millions have been devastated by the loss of their homes. Many more have watched their home values plummet and now nearly one in three California borrowers are underwater, owing more to the banks than their homes are worth. California has the second highest foreclosure rate in the country, surpassed only by Nevada. For these reasons, our stake in the outcome of the settlement talks is great. Our families, our communities, our government and our economy depend upon a fair outcome.

Taxpayers revived the Big Banks from their self-inflicted crash with a $700 billion bailout in 2009. With the infusion, banks were directed to help homeowners recover from the mortgage crisis they created. Instead, bank executives took the money in big bonuses. The greed boggles one’s mind. Some should go to jail. Instead they again want to pay pennies on the dollars they took while foreclosing on millions of California homes.

On every level, the proposed settlement is inadequate: The total settlement amount is expected to be just $25 billion dollars, while the nation has $750 billion in negative equity. $25 billion would not even cover the loss of home equity to California families, let alone all homeowners across the country. The settlement is expected to help a million homeowners, when more than 10 million are underwater and millions more have been wrongfully foreclosed upon. The settlement needs to be in the range of $200 -$400 billion, not $25 billion.

Even worse, we are concerned that the settlement may not even come from the pockets of those who engaged in the misconduct. If the settlement gives servicers credit for writing down the value of investor-owned mortgage-backed securities without requiring them to write down the mortgages and liens they own, it will be our public pension plans, not the banks, that will take the hit. That means the same working families who have already seen their life savings go up in smoke will now face losses in their retirement funds. Not only is this a great injustice, but it fails to enact any real penalty against the bad actors.

It is difficult to overstate the harm that has been inflicted on our economy by the financial institutions now seeking to pay a relatively small sum and receive broad immunity. Foreclosures destroy families financially and emotionally, and blighted, abandoned properties destroy our communities. Cities, counties, and the state are unable to meet the needs of our most vulnerable, while banks sit on record reserves.

 

Any settlement must provide meaningful relief to homeowners and to the economy. We urge the Deptartment of Housing and Urban Development to ensure that the rush for quick relief does not overshadow the need for an equitable settlement that provides:

  • Widespread principal reduction for California homeowners and fair redress for those who wrongfully lost their homes.
  • Reform of lending and servicing practices and penalties on those who broke the law to deter such wrongdoing in the future.
  • Real enforcement to ensure compliance.
  • Limited liability waivers for only those issues that have been fully investigated.

We stand behind California’s Attorney General, Kamala Harris, who has firmly and vigorously refused a settlement that falls far short of recovery for the state’s homeowners who have been forced into distress by the banks. And she wants to reserve the right to investigate wrongdoing in the mortgage debacle. She’s right. And we should have it no other way.

Underwater Mortgages and 1 Million Jobs

Underwater Mortgages and 1 Million Jobs
Note: This is modified from a blog originally posted at http://www.newbottomline.com/underwater_mortgages_and_1_million_jobs   

Today, ACCE and the New Bottom Line released a report detailing a solution to the foreclosure crisis. “The Win-Win Solution: How Fixing The Housing Crisis Will Create 1 Million Jobs” details how we can fix the housing crisis and revitalize our communities and economy if the banks were to lower the principal balance on all underwater mortgages to current market value.  

One in five Americans owe more on their mortgage than their home is actually worth.  Collectively, underwater homeowners will have to pay down $709 billion in principal before they can start building equity in their homes.  Every effort to reboot the housing market to date has failed because it has not done the most essential thing: reduce the massive debt load carried by underwater homeowners.

The report reveals that if the banks stepped up and provided principal reduction on all underwater mortgages to current market value, we could:

•    Create 1 million jobs every year — This includes over 300,000 jobs in California, the state hit hardest by the financial crisis.  
•    Pump over $70 billion per year back into communities– This includes $12 billion dollars per year in Florida, the second of the two states hit hardest by the foreclosure crisis.
•    Save the average family over $500 per month on mortgage payment
•    Solve the foreclosure crisis once and for all

“Homeowners across the nation are struggling to pay their boom-era mortgages with their recession-era salaries and the economy is suffering for it,” notes the report. “Writing down the principals and interest rates on all underwater mortgages to market value would serve as the second stimulus that America so desperately needs, only without added costs to taxpayers.”

As the banks have been able to profit from millions of people losing their homes,”The Win/Win Solution” demonstrates that the banks can afford to execute this plan.  Last year, the nation’s top six banks paid out more than twice the cost of the plan ($71 billion per year) in bonuses and compensation alone ($146 billion in 2010).  Currently, the nation’s banks are sitting on a historically high level of cash reserves of $1.64 trillion.

This is an opportunity for California Attorney General Kamala Harris to step up and be a hero to Californians.  Standing up to Wall Street Banks is good policy and good politics.To help us prioritize our communities and our families and start rebuilding a working economy, join our call to Attorney General Harris to make principal reduction on underwater mortgages a key part of any foreclosure settlement with banks.

For more information on ACCE and this campaign, visit www.calorganize.org

46 Years later, Watts destroyed anew

By Lyneva Mottley

It’s hard to believe that it’s been 46 years since August 11, 1965, the day the Watts uprising began.  I’ll never forget the fear that I felt watching the chaos unfold.  I was shocked but not surprised: you could feel the anger and frustration building up during that hot summer. The booming California economy was providing little opportunity for people of color.  Public policy was benefiting the already fortunate and was leaving behind those who were already disadvantaged.  In California, as in the rest of the country, African American and Latino families were reaching a boiling point that could not be contained any longer. Over the following two years there were a number of additional riots in Chicago, Newark, Detroit and elsewhere.  

Today in Watts and across California people are feeling that familiar angry bubbling stirring up as the gap between rich and poor grows ever wider. During this time it is important that we recall the lessons from that turbulent period in our nation’s past.

Two years after the riots broke out, President Lyndon Johnson established The Kerner Commission to try to understand what happened and what could be done to prevent further occurrences.

The resulting document, known as the Kerner Report, recommended that people from all walks of life have more equal access in four major areas:  jobs, education, housing and services.  Unfortunately, the inequality of 46 years ago is all too familiar today.

To be sure, there have been areas of progress.  The Community Reinvestment Act of 1977 outlawed discriminatory banking practices and redlining.  This helped give millions of minority families like mine the opportunity to fulfill the American Dream through homeownership.

I knew something was wrong a decade ago when my mailbox began to get filled on a daily basis with offers that seemed too good to be true.  The pamphlets were from realtors, brokers and lenders that were selling predatory loans.  These subprime loans were designed to be more expensive products for high risk borrowers, but turned out to be a chance for loan sharks to make a buck by pushing them on my elderly and minority neighbors, whether they needed them or not.  One Wells Fargo loan officer recently testified publicly to the widespread practice of steering subprime loans, cynically referred to as “ghetto loans,” to borrowers with good credit.

Wall Street securitized these loans and packaged them as good investments until the market’s inevitable collapse.  According to a recent report, “Homewreckers,” the loss to homeowners, the property tax base, and local governments amounts to at least $650 billion. Meanwhile, bank CEOs continue to be absurdly compensated, with Chase’s Jamie Dimon earning $20.7 million and Wells Fargo’s John Stumpf earning $17.5 million in 2010.

Of course, African American and Latino families have not fared nearly as well.  A new report from the Pew Research Center finds that median household wealth in African American households declined 53% between 2005 and 2009 from $12,124 to $5,677.  Wealth among Latinos fell even more dramatically during the period, from $18,359 to $6,325, a 66% decline.[4]

Many of us feel as frustrated today as we did in 1965. Yet, as was the case 46 years ago, there is an opportunity for elected officials and Wall Street to address the problems.  Key among them is the growing number of mortgage holders who now owe more than their houses are worth. Today, 23% of homeowners are underwater, including as many as 35% of African American homeowners and 41% of Hispanic homeowners.

It is a problem we can solve if we have the will to do so.  We can actually fix the foreclosure crisis in California by writing down all underwater mortgages (2.1 million in the state) to market value.  This would pump an annual $19.9 billion into the state economy and create 295,000 new jobs annually for 30 years.  It would save Californians an average of $790 a month on mortgage payments and would dramatically reverse the loss of wealth in minority communities.  

I still believe in the American Dream.  That’s why Bank CEOs and elected officials owe a solution to devastated black and Latino families in Watts and everywhere who believe we all deserve a fair chance to pursue our dreams.

Lyneva Mottley grew up in Watts and has lived there for over 50 years. A homeowner, she is retired from a career in factory work and home health care. She is the acting chair of the Watts chapter of the Alliance of Californians for Community Empowerment (ACCE).  For more information about ACCE, visit www.calorganize.org

CA-10: An Interview With Anthony Woods

The race in CA-10 for the seat vacated by Ellen Tauscher features three lawmakers with long resumes at the state level.  And then there’s Anthony Woods, a young man with no prior history in elected office, but festooned with what Benjy Sarlin of The Daily Beast called the best political resume ever.  Woods is an African-American product of a single mother who found his way to West Point and Harvard’s Kennedy School of Government.  He is a two-time Iraq war platoon leader who returned all of his men home safely and received the Bronze Star.  He is someone who, after returning home, was dismissed from the Army for challenging its Don’t Ask Don’t Tell policy.  But politicians don’t vote with their resumes.  They must have the conviction to vote with their principles.  I actually conducted the first interview with Woods back in April, and since then others have taken notice.  So I thought I’d return to Woods and ask him about some of the key issues facing the Congress in the coming months.  A paraphrased transcript of the conversation, executed last Wednesday, is below.

DD: Thanks for talking to me today.

Anthony Woods: No problem, thank you.

DD: So how’s it going on the campaign trail?

AW: You know, it’s really exciting.  We’re reaching that point where we’re really building some critical mass.  As you know, I did pretty well in the last fundraising quarter, we’re going to have enough money to compete with some experienced lawmakers.  The Human Rights Campaign and the LGBT Victory Fund just endorsed me, which is very exciting and shows their commitment to this campaign.  We just had a great grand opening of our office with 50 volunteers from across the area.  I’m holding a town hall meeting in Fairfield (this already happened -ed.) coming up and we’re really starting to see a path for this to happen.  It’s great.

DD: OK, well let’s start with the biggest issue on everyone’s minds right now and that’s health care.  The way it’s looking, if you’re elected you might get a vote on this.  What are your principles for this debate, and how would you like it to go.

AW: Well, I’ve been getting more concerned every day.  At first, I was thinking that Congress gets it.  They’re going to do something to deal with the health care crisis in this country that I see talking to folks every day.  But as we get into it, they’re moving further and further away.  First of all, they should have started the conversation at single payer so that if they had to move to the center they would have been coming from a better place.  What we have are two issues: access and cost.  Clearly the system right now is broken on both fronts.  50 million people go without health insurance and the costs are skyrocketing.  And the Congressional effort looks to be falling short.  I’m very concerned that there may be no public option.

DD: OK, so will you take a stand right now and say that if the bill before you has no public option that’s available the day it’s introduced, you won’t vote for it?

AW: I don’t know if I’d exactly go that far, but here’s what I would say.  I think there has to be a public option that’s efficient and effective.  And if the Democrats have some bold leadership, they can do it and do it right.  What we need is some competition in the individual marketplace.  If people have to buy insurance, we have to give them a choice that’s affordable.  So that’s my first priority.  And if the bill before me doesn’t have that, yeah, I’d have trouble voting for it.

DD: You say it’s about bold leadership, OK.  Right now, about 90% of all private insurers offer abortion coverage as part of their health care plans.  If a public option is supposed to compete with the private insurance market, doesn’t it have to offer the same kind of baseline coverage that private insurers offer, especially if they are legal medical services?

AW: I think so.  I am pro-choice, and I don’t believe in limiting the right to choose.  And if you’re giving someone health insurance who has had trouble affording it, if they have to make the difficult choice to get an abortion, they need the same kind of resources that you could get on the private market.  So I would agree with that.

DD: OK.  I want to talk about the F-22.  As you know, the Senate just voted down funding for additional funding for F-22 fighters that were designed for the Cold War and have never been used in Iraq or Afghanistan and are apparently vulnerable to rain.  What’s your reaction to that, and then I want to get into the military budget more generally.

AW: I support stripping the funding.  My view is that if the Secretary of Defense and the Chairman of the Joint Chiefs of Staff and the President all say we don’t need them, we probably don’t.  And regardless of the impact on jobs, we should listen to that.  I think we need in procurement a short-term view and a long-term view.  We should obviously be prepared to defend the country, but we should be prudent with those funds, because it is real money.

DD: The F-22 funding and some other funding may stop, but the military budget will increase this year.  And we still spend more on military activities than any other country on Earth combined.  How can we continue to do that, isn’t it unsustainable?

AW: My deployments in Iraq taught me that the military cannot be the solution to all of our problems overseas.  Because we have this mindset currently, we’ve created a situation where the military is providing resources that other agencies could provide.  We shouldn’t have the Defense Department doing the work of the State Department or NGOs or US AID.  I think if we shift some of that burden, it will actually make the troops safer, because we can focus resources on protecting them and providing them the equipment they need, instead of making the military the sole solution to every problem overseas.

DD: I want to tell you about a story I saw in the Wall Street Journal.  It showed that the top 1% of wage earners in this country, the executives, the wealthy, are now earning 35% of all compensation.  How do you react to that?

AW: Wow.  That says a lot.  You know, these are tough times, and when you see a tiny fraction like that benefiting from the resources of this county, I think it says that they need to sacrifice.  We’re in a situation where we implemented tax cuts in the middle of a war.  We’re trying to figure out how to pay for health care.  And the top 1%, they’re doing pretty well.  I think we need some shared sacrifice.

DD: Why do you think it’s so difficult for Democrats to simply say what you just said in that way?  Even the surtax they’ve come up with in the House to pay for health care is getting dismissed.  Why can’t we just make the case that America is worth paying for, especially for those who use the public commons so much?

AW: I really think it starts with people who are willing to say that.  And it’s why I want to be there representing this community in Washington.  My opponents are mostly the same politicians who we keep sending to Washington again and again, and I think we need someone who isn’t afraid to say that, you know, the country has provided a lot to a small group of people, and they should give a little bit back.

DD: OK, let’s move on.  The foreclosure crisis is still hitting California hard, and so far the solutions that have come from Congress hasn’t worked.  What are some of your ideas to keep people in their homes?

AW: This is something I hear about from people every day when I’m campaigning.  In California, we had a moratorium on foreclosures for a while, and I think that’s part of the equation, but if you don’t provide loan modifications for people, eventually that’s not going to be enough.  The immediate crisis we have is that people are losing their homes, so we need to make the necessary adjustments to allow people to refinance.  After that immediate crisis, I think we have to clean up the regulatory environment, both in the mortgage market and also in banking.

DD: I’ve heard an interesting proposal called “right-to-rent,” where people facing foreclosure can pay rent on the home for a number of years, they get to stay where they are, the banks have a revenue stream and don’t have to deal with a blighted property, and the community gains from not having foreclosed properties on their block.  What do you think of that?

AW: Sounds good.  A lot of people are suffering right now.  And it’s traumatic to uproot yourself and have to leave your community, to have your kids leave schools.  So anything that keeps folks in homes and communities sounds like a smart idea to me.  It’s certainly better than what we’re doing.

DD: But how do we institute something like that when the banks, in the words of Dick Durbin, “own the place”?

AW: That’s a tough problem.  You know, the healthiest banks right now are the ones who separated investment and lending.  And I think that most people I meet are frustrated to see the banks get us to this point.  They want common-sense regulatory solutions to change that environment.  I think the banks will have a real problem on their hands if they keep pushing and pushing, and people don’t see a change in their daily lives while the banks rake in tons of money.

DD: OK, but what’s the theory of change?  How do we get all this done?  When you have a situation where special interests rule and campaign contribution money means more than constituents, how can we fight for progressive outcomes in a Congress that appears to care more about the next election?

AW: Well, I think we have to elect people who are accountable to the ones who sent them.  For me, I will give as much access to everyday people as possible, and let them shape my agenda rather than special interests and lobbyists.  And I think we need to elect more people who have this philosophy.  We’re going to have to do it one representative at a time.  And I think that’s one of the reasons why my campaign is taking off.  We cannot expect different results with the same politicians dealing with the same problems year after year.  So I don’t know if we can deal with everything at once, but we’ll have to do it one representative at a time.

DD: OK, last question.  Obviously, here in California, we’re looking at a terrible budget and lots of structural problems.  What can be done at the federal level to perhaps help the state out of this mess?

AW: Well, just looking at the state budget deal, it’s basically more of the same.  There’s a crisis of leadership in Sacramento, and it produced a budget full of accounting tricks that just kick the can down the road.  It’s clear that the system is broken, and that’s why I’d prefer a Constitutional convention and at the least getting rid of the 2/3 rule for budgets.  California is such an important economy, it’s a big chunk of the country, and when we aren’t doing well, the country suffers.  At the federal level, I think we need smart investment.  The state is a donor state, it doesn’t get back in funds what it pays in taxes.  So I’d like to help reduce that.  And also, we can take advantage of the resources and opportunities in California.  This state has the chance to be a new energy leader, through wind and solar.  And so I’d like to see those kinds of smart investments in California.

DD: Do you support a second stimulus, focused on state fiscal stabilization funds to save those jobs that rely on state spending?

AW: I think we’re having a hard time distributing the funds from the first stimulus.  So I think we have to give it some time to work.  But we are definitely at a crisis point in this state, I see it every day, so I think we need to monitor the situation.  And we have to make sure there’s a safety net in place for the people of California.

DD: OK, great, thanks for taking the time to talk to me.

AW: Thank you.

The Airbrush Of Human Beings From The California Budget Crisis

Peter Schrag is one of the few columnists left in this state who consistently makes sense, and today he attacks that silly NYTimes article about California, in particular the elements of conventional wisdom:

In his passing references to California’s serious issues, many of which have major implications for the nation as a whole, Leibovich collects pieces of the conventional wisdom, even when, as in his facile summary of the causes of gridlock in Sacramento, it’s wrong. Since Democrats have again and again agreed to multi-billion dollar cuts, it is not, as he thinks, just a matter of “‘no more taxes’ (Republicans) and ‘no more cuts’ (Democrats).”

And while Jerry Brown, in his prior tenure as governor was indeed labeled “Governor Moonbeam” (by a Chicago columnist) for his space proposals, as Leibovich says, the label applied much more broadly to his inattention to the daily duties of his office and, most particularly to his dithering while the forces that produced Proposition 13 began to roll.

Brown later acknowledged that he didn’t have the attention span to focus on the property tax reforms that were then so urgently needed to avert the revolt of 1978. But to this day, almost no one has said much of Brown’s role in creating the anti-government climate and resentments that helped fuel the Proposition 13 drive.

It was the Brown, echoing much of the 1970s counter-culture, who, as much as anyone, was poor-mouthing the schools and universities as failing their students and who threatened to cut their funding if they didn’t shape up. It is Brown who spent most of his political career savaging politics and politicians, even as he ran for yet another office. Now this is the guy who wants to be governor again. But Leibovich doesn’t tell his readers that long history. Maybe he doesn’t know it.

The line about how those who fail to learn from history are doomed to repeat it can be inserted here.  But Schrag hits on the most important failing of the article, and indeed of a good chunk of the political media here in California – they airbrush out the people who suffer for the failures of the politicians.

Where are California and the people who are feeling the pain – the school kids and teachers in hopelessly underfunded schools, the children who are losing their health care, the minimum-wage working mothers struggling to pay their child care, the students who are losing their university grants? Is all this really about nothing?

To far too many, the answer is yes.  It’s politics as theater, as a sporting event, where winners and losers are checked on a board, and whether or not a leader will keep their position is made the story rather than the principles he or she represents.  And yet it’s not Governor Hot Tubs and Stogies who will feel the pain of an economic downturn and massive budget cuts, nor well-heeled consultants or columnists who make up the scorecards.  It’s people.

People like the students in the Cal State system who may see their fees raised 20%, just months after a 10% hike approved in May.  This will effectively block higher education for a non-trivial number of students, as will proposed enrollment reductions of 32,000 students.

People like LA County homeowners who have defaulted at twice the rate in May as they have in the previous month, as a foreclosure backlog builds up due to various moratoriums and an increase in repossessed homes entering the market.

People like IOU holders who may have to turn to check-cashing stores to get less-than-full value for their registered warrants after Friday, when most major banks (who have all been bailed out by the federal government, by the way) stop the exchange of the notes.

And people like the elderly, disabled and blind, who rely on the in-home support services that the Governor is trying to illegally cut in contravention of a contempt-of-court citation, at least in Fresno.

These are the great unmentioned in this California crisis, the people who Dan Walters tries to smear in his column today by turning every Democratic concern for the impacts of policy as a sellout to “public employee unions.”  Behind those unions are workers, and the people they serve need the help the provide, in many cases, simply to survive.  But it would be too dangerous to Walters’ beautiful mind to consider those faces, so he chooses to make political hay out of the violation of people.

This is the point of the People’s Day of Reckoning Coalition.  They refuse to have their existence denied any longer.

…THE Jerry Brown commented in Schrag’s post:

Mr. Schrag’s latest screed is a good example of why politics in Sacramento is so dis-functional. Instead of trying to find the truth in the Leibovich article, he mocks both the writer and each of the subjects. In recent years, Schrag has become increasingly bitter. That’s very sad because he once was an open-minded person with real insight into the predicaments of modern society. Finally, his memory is not serving him well regarding Propistion 13 and the factors that constituted the ethos of that period. In fact, there was a long and hard fought battle to get property tax relief that got all the way to the state Senate but foundered just short of the necessary two thirds vote. There is much to say about government, schools and taxation in California. But to get anywhere it requires a degree of empathy and engagement with opposing perspectives that no longer seems congenial to Mr. Schrag.

Posted by: Jerry Brown at July 8, 2009 08:41 AM

Wow.

Stopping the 13 Second Clock: ACORN and Leading Mayors Join Together in Fighting Foreclosures

California’s economy can’t really stabilize until the foreclosure crisis is resolved.

Yesterday I was honored to be on a call with America’s leading mayors and the US Conference of Mayors to talk about a huge problem affecting cities from coast to coast: the foreclosure crisis.

I’ve been talking about how a family is losing their home every 13 seconds for awhile now and the recent failure by Congress to enact bankruptcy reform to protect homeowners because of industry pressure was a real blow to stopping that clock.  

But the failure in Washington isn’t going to stand in the way of ACORN’s push to address the crisis at the heart of the economic meltdown and teaming up with some of the leading mayors in the United States is a major way we’re moving forward to help families stay in their homes.

Let’s set the record straight about one thing – mayors and ACORN tried to stop this crisis before it began, only to be preempted by federal regulators who did the industry’s bidding, and now we are left to clean up the mess.  It took the election of Barack Obama for the federal government to start helping families, but even his excellent Making Home Affordable program only aims to prevent 3 to 4 million foreclosures out of the expected 9 million over the next four years.

So it’s up to us – regular folks, community organizations, and local community leaders.  We cannot sit on the sidelines while 5 to 6 million families lose their homes.

Luckily there is a tremendously successful model already in existence in the city of Philadelphia. Called “mandatory mediation” it is based on one simple technique: having borrowers and lenders sit down and talk. The success rate is astounding.  As we have shown in our recent report, “Road to Rescue: How the Philadelphia Model Can Reduce Foreclosures Across the Country“,  fully 78 percent of homeowners who have participated in mediation are still in their homes today. 78 percent! Imagine if we could replicate that across the nation!  

The Philadelphia program works because it incorporates four pillars: (1) It is mandatory. (2) It involves extensive community outreach to struggling borrowers. (3) It has an easy threshold for participation. (4) It makes use of housing counselors to ensure affordability of workouts.  

On yesterday’s call, we heard from Philadelphia Mayor Michael Nutter, whose office now coordinates this highly effective program.  He has raised money from the private sector to join city funds, but he needs more help, including from the federal government, especially as the foreclosure crisis lays at the heart of our recession.

President Obama himself understands this, and in his February speech laying out the foreclosure plan, said, “We are going to award $2 billion in competitive grants to communities that are bringing together stakeholders and testing new and innovative ways to prevent foreclosures. Communities have shown a lot of initiative, taking responsibility for this crisis when many others have not. Supporting these neighborhood efforts is exactly what we should be doing.”

Unfortunately, no such support for local foreclosure prevention yet exists.  ACORN will join mayors in fighting to make sure the federal government does as President Obama promised and funds these initiatives.  Despite a recent unanimous Senate vote on an amendment offered by Senators Casey and Gillibrand to open up some of the Neighborhood Stabilization Program funds for foreclosure prevention, rather than just buying properties after they’re foreclosed, the amendment died in the House.

Across the country, ACORN Housing counselors are waging daily battles just to get reasonable modifications and save homes, but the industry is still foreclosing on hundreds of thousands of families that could be helped but don’t live in a city with a mediation program. The efforts of mayors and ACORN to facilitate more affordable loan modifications will be critical in halting the national housing and economic downfall.  

Mayor Bloomberg is joining us in pressuring Albany to improve the state’s mediation law, Mayors Villaraigosa and Dellums are working with us to get needed changes out of Sacramento, and Mayors Slay (St. Louis) and Diaz (Miami) also committed to working with us locally, statewide, and nationally to help save homes.  

With millions more foreclosures staring us in the face, we have to act now to create sensible local solutions that will improve our communities, safeguard families, stabilize tax bases, and revive the economy.  With leading mayors stepping up yesterday, we’re starting to get the ball rolling.

Alt-A Meltdown

If you aren’t depressed enough by the coming collapse of social programs for Californians as the budget nightmare drags on, consider that there will soon be more need for social services and less revenue available, as we segue into the rarely-remarked upon second wave of foreclosures in the Alt-A market.

A new wave of foreclosures is building in Sonoma County, one that echoes the subprime crisis that flooded the region’s housing market with distressed properties.

The tide of troubled loans, which first struck high-risk borrowers who did not qualify for conventional mortgages, is now spreading to people with good credit who purchased more expensive homes.

This time, it involves borrowers who took out mortgages known as Alt-A loans. Like the subprime loans that began imploding in 2006, these loans offered seductively low introductory payments that enabled many borrowers to buy or refinance homes that were pricier than they could otherwise afford.

Now, those borrowers increasingly are discovering the true cost of their loans. When the introductory period ends, monthly payments can jump 50 percent or more on the typical Alt-A loan, far higher than many borrowers can afford.

There are hundreds of thousands of these loans in California just waiting to recast.  In the context of Sonoma County, 18% of all housing loans are Alt-A, most of them purchased between 2004 and 2006.  Two-thirds of them will see rapid jumps in their payments in the next two years.

I spoke with Asm. Ted Lieu this weekend, who didn’t even want to describe these as foreclosure waves.  “It feels like they never stop.”  He hopes that the latest government program to try and fix the foreclosure crisis, which can allow new mortgages to be issued at 96.5% of current value, will actually make an impact, but we’re talking about a whole new class of borrowers getting into trouble because of these rate recasts.  This of course adds to the properties on the market, bringing down prices, adding to a whole new wave of tax reassessments, and on, and on, and on.

You can almost set aside the unemployment crisis, and the feedback loop of decreased government spending leading to reduced consumer spending and more unemployment.  Just this continuing housing crisis is enough to permanently disable any solutions to economic recovery.

…I should note that AB260 passed the Assembly today, forward-looking legislation which would prohibit lenders from steering borrowers into bad loans, prohibit lenders from reaping financial advantages (called yield spread premiums) from that steerage, ban negative amortization loans and regulate subprime lending.  The Governor vetoed similar legislation last year.  This is an impressive reform, but too late.  The crisis has spread into prime loans by now.

Beware The Second Wave Of Foreclosures

I think the general consensus on the economy from the grand poohbahs of the establishment is that we’re contracting less slowly, that we’re easing toward the bottom and will be able to improve as the year goes on.  This optimism depends on no further “unforeseen” downturns in key economic sectors.  But that just doesn’t seem plausible.  Zillow.com’s estimates show that over 20% of all homeowners owe more on their mortgages than their homes are worth, as prices continue to decline.  Considering that 24,000 homes and apartments are vacant in Sacramento, for example, up 40% year over year, the glut of supply suggests that those prices have further to fall.  And thus we will not see much of a rebound in equity in the short term.  Keep in mind that many of these homeowners who are underwater will experience recasts to their mortgage rates in the coming year, further straining their ability to make payments.

Now we have compelling evidence that a second foreclousre wave is starting to rumble through California once again, which could trigger the very same spiral that brought the nation’s economy to its knees last year.

Here’s another sign that California’s foreclosures could jump in 2009: Delinquencies on dues owed to homeowner associations have risen sharply.

The homeowner association delinquency rate can serve as a leading indicator of sorts because homeowners usually stop paying dues before they stop paying their mortgage. The 90-day delinquency rate on dues for the 260 homeowner associations in California managed by Merit Property Management jumped to 5.3% in March from 2.8% last June. Delinquencies first spiked to 2.6% in December 2007 from 0.8% in March 2007.

The Journal looked at how banks were beginning to ramp up foreclosures after holding off for several months. Pre-foreclosure notices in California spiked in March after a state law had suppressed foreclosures at the beginning of the year.

Pre-foreclosure notices are where this begins, and those notices rose by 80% in the first quarter of 2009 from the previous quarter.  As the article notes, the moratorium on foreclosures has been lifted, which will put more pressure on homeowners.  We all understand that bad loans caused this crisis in the first place, right?  Well, a lot of bad loans are still out there.  At particular risk are those mortgages purchased at the height of the bubble in 2005 and 2006.  Loans made in 2006 have an 8.5% default rate statewide.  These are the worst liar loans, NINJA loans, many of them due to recast to higher interest rates.  And this includes jumbo loans.

The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, Calif., show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.

If you think this is over, particularly in California, duck.

Pressured By CA Lawmakers, Obama Expands Mortgage Refinance Program

When the Obama Administration’s plan to mitigate foreclosures came out, it was clear that it would be insufficient to deal with the particular challenges faced in California.  Initially, the plan would only modify loans where the amount owed was 105% of the home’s true value.  Given that home prices have collapsed here, this would have helped almost nobody in California.  State lawmakers, in particular the Democratic point person on mortgages and foreclosures Asm. Ted Lieu, went to Washington to lobby for changes.  And today, faced with a sluggish mortgage rescue program attracting few lenders or homeowners, the Administration expanded the plan.

The Obama administration said Tuesday it is expanding its foreclosure prevention program to cover second mortgages and to direct more troubled borrowers to the Hope for Homeowners program.

Under the administration’s new program, the interest rate on second mortgages will be reduced to 1% on loans where payments cover interest and principal and to 2% for interest-only loans. The government will subsidize the rate reduction, with the money going to the mortgage investor […]

Also Tuesday, the administration said it is now requiring servicers to offer troubled borrowers access to Hope for Homeowners as a modification option if they qualify.

Expanding Hope for Homeowners would address one of the major holes in the original Obama foreclosure prevention plan. It helps homeowners whose homes are now worth far less than their mortgages.

Servicers had balked at participating in the Hope program because it required they reduce the mortgage principal balance to 90% of a home’s current value.

Hope for Homeowners, which began in October, is being revamped in Congress. Servicers would have to reduce the principal to 93% of the home’s value. The change would also reduce the program’s high fees, which turned off many troubled borrowers.

Loan servicers get a fair bit of cash incentives for participating in the program, which I don’t totally support, but if we have to bribe lenders in order to keep people in their homes, that makes more sense than spending the same amount of money on the fallout from a foreclosure.  And lenders do take a haircut in the Hope for Homeowners program, the first loss to my knowledge that lenders have been forced to take.

Asm. Lieu responded with this release (flip it):

“I am very pleased the Obama Administration today acted on the concerns raised by states such as California and took two steps to expand refinance and foreclosure assistance to distressed homeowners.

First, the Administration announced it would incorporate the Federal Housing Administration’s (FHA) Hope for Homeowners program into the existing Making Home Affordable Program.  This is significant because currently, the Making Home Affordable Program has a 105% underwater refinancing cap, which shuts out many Californian homeowners.  The Hope for Homeowners program does not have that limitation; instead, the Hope for Homeowners program states that lenders will take a loss on the difference between the existing loan amount and the new refinanced loan, which is set at 96.5% of the appraised loan value.      

For example, under the existing Making Home Affordable program, a homeowner whose home is valued at $100,000 but owes $120,000 on the existing loan balance would not qualify for refinancing under the program because the loan is 120% underwater.  However, under the Hope for Homeowners program, the homeowner could qualify and the new refinanced loan would be $96,500.  The lender would take the loss of $23,500.  The Obama Administration would increase the number of lenders participating in the Hope for Homeowners program by offering financial incentives to the lenders.

Second, the Administration announced steps to address the second lien problem.  Many distressed mortgages have two liens and often the second lien holder does not want to modify the loan.  The Obama Administration will provide financial incentives to allow the second lien to be reduced or extinguished.

These two critical actions will expand assistance to distressed homeowners in states such as California, where many loans are more than 105% underwater or have second liens.”

This is decent news.  Unfortunately, the tool that homeowners really need to stave off foreclosure, the ability for bankruptcy judges to cram down the principal of a loan on a primary residence, appears poised for what amounts to defeat in the Senate, a testament to the continued power of the nation’s biggest banks.

In order to garner the support of conservative Democrats and a few Republicans, the proposal has been watered down. The bankruptcy legislation will still allow homeowners to renegotiate mortgages in bankruptcy – the so-called cram down provision – but only under strict conditions. The banking industry has lobbied fiercely against cram down, but Durbin said on the Senate floor Monday night that the compromise was supported by Citigroup, which has been at the negotiating table.

“In the past, some of my colleagues understood the need for action but have been uncomfortable with the original language. Let me be clear: this amendment is different,” said Durbin. “The amendment I’m going to offer will make a modest change in the bankruptcy code with a lot of conditions. It won’t apply across the board. This amendment limits assistance in bankruptcy to situations where lenders are so intransigent that they are unwilling to cooperate with the foreclosure prevention efforts already underway – Obama’s homeowner assistance and stability plan and the Congressionally-created HOPE For Homeowners, which this bill will greatly improve.” […]

Meanwhile, the banking lobbyists are furiously lobbying against it and Durbin acknowledges it will be difficult to “muster the votes, although I know it will be hard.”

It is “hard to imagine that today the mortgage bankers would have clout in this chamber but they do,” said Durbin. “They have a lot of friends still here. They’re still big players on the American political scene and they have said to their friends, stay away from this legislation.”

We will be in a better position with foreclosures by the end of the week than we were at the beginning, but not where we need to be.