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.

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
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

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

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.

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.

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.