Good morning. This is Ted Lieu, and I represent parts of Los Angeles County, including Torrance, Redondo Beach, Marina del Rey and West Los Angeles, in the California Assembly. I want to thank the Center for Responsible Lending for inviting me to take part in the release of this critical research on broker pricing patterns.
As many of you know, California is the epicenter of the foreclosure crisis. Last year, the Center of Responsible Lending estimated that nearly 500,000 California families would lose their homes to foreclosure due to the reckless lending practices that are so common in the subprime market. The prospects have not improved: according to more recent data from Merrill Lynch, Moody's Economy.com and the Mortgage Bankers Association, the Center estimates that more than 350,000 California homes will be lost in 2008 and 2009 alone.
Subprime loans have in the past and will continue to represent the largest and disproportionate share of California's foreclosures: while subprime loans represent 15 percent of outstanding mortgages in California, they accounted for 68 percent of foreclosures in the second quarter of 2007. With statistics like these, it's quite clear that reform of the subprime market is long overdue.
In an effort to rein in some of the abuses that have brought millions of Americans and Californians to the brink of foreclosure, I have introduced legislation—the Subprime Lending Reform Act—that would, among other things, ban yield spread premiums and incentives given to brokers to place borrowers in higher interest rate loans for all high-cost, subprime and nontraditional loans.
Thanks to the Center for Responsible Lending, we now know in striking detail the difference between a borrower going to a mortgage broker and going to a retail lender. We know that the greatest price differences exist in the subprime market. And we know that prime borrowers typically do not pay more for more broker loans.
The subprime market in its current shape does not adequately serve consumers. But it can. In California, we hope to bring meaningful reform to the subprime market to better protect both borrowers and the economy, and to do so, we must be willing to eliminate broker incentives to put borrowers in loans whose costs do not align with the risk of the borrower.
Thank you for your time. I look forward to answering any questions you may have.
For more information: Kathleen Day at(202) 349-1871 or kathleen.day@responsiblelending.org; Sharon Reuss at (919) 313-8527 or sharon.reuss@responsiblelending.org; or Ginna Green at (510) 379-5513 or ginna.green@responsiblelending.org.