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California response to foreclosure crisis weak

Tuesday, August 21, 2007

A coalition of California consumer organizations demanded stronger, swifter action on the part of the California legislature in response to the subprime mortgage crisis at a press conference in Sacramento today as well as in testimony before the Senate Banking Committee.

The organizations, including California ACORN, the California Reinvestment Coalition (CRC), the Center for Responsible Lending (CRL), Consumer Federation of California (CFC) and Consumers Union recommended a number of policy changes that would both assist current borrowers in crisis and protect future subprime borrowers.

"Two years ago, I had an affordable mortgage and owed only $9,000 on my home," said Dorothy Hicks, an Oakland resident and ACORN member. "After two refinances and thanks to details I was never told, I have no business and may soon have no home."

"I thought that there were laws that kept companies from taking advantage of people, but I found out the hard way that whatever laws we have are not enough."

Ms. Hicks is not alone. California is projected to see nearly half a million foreclosures among subprime loans originated between 1998-2006. Yet, California has taken no action to address the subprime mortgage collapse and the irresponsible lending practices that are at its root. According to CRL, Ohio, Maine, Minnesota and, just last week, North Carolina, have already implemented strong legislation to curb the risky practices that permeate the subprime market. Numerous states are exploring ways to help borrowers facing foreclosure, including Colorado, New York, Massachusetts and Ohio, which have all created funding pools to help borrowers refinance into long-term affordable mortgages.

"With record levels of foreclosures and more coming, California's homeowners, housing markets and economic growth are all at risk," said Center for Responsible Lending California office director Paul Leonard. "The state should lead efforts to reduce foreclosures, help borrowers and reduce risks for new subprime loans."

Among the range of today's recommendations aimed at helping current subprime borrowers were:

  • Emergency funding for foreclosure prevention counseling and legal assistance;
  • Support for a lender-initiated moratorium on foreclosures;
  • Aggressive state monitoring of lender loan modification efforts to keep borrowers in their homes; and
  • State-financed mortgage products to help at-risk borrowers refinance into long-term affordable mortgages

The coalition also suggested a number of legislative changes to help protect subprime borrowers taking out loans today and in the future. These included:

  • Banning subprime prepayment penalties;
  • Establishing a legislative ability-to-repay standard, with income verification and impound accounts for taxes and insurance; and
  • Cracking down on broker abuses by establishing stronger lender liability for broker actions.

For more information: Ginna Green at (510) 379-5513 or ginna.green@responsiblelending.org.