Stop Foreclosures on Families in Loan Modification
SB 1470 (Leno), AB 1602 (Eng)
To stabilize our economy by promoting loan modifications and reducing unnecessary foreclosures.
Over the past six years, foreclosures have ravaged the state of California. Over 1.2 million families have had their homes foreclosed. Nearly one-third of all California homeowners with a mortgage owe more to the bank than their house is worth.
When a family loses their home to foreclosure, they lose more than their most valuable asset. Many families lose their chance at home ownership for a
generation. Families have to move, forcing children to get pulled out of school, disrupting their education and their sense of stability.
There are real costs to this private pain. A study conducted by the Alameda County Public Health Department and the housing rights group Causa Justa found that those who have had homes foreclosed on are twice as likely to report that their mental and physical health has declined. Anxiety and depression are commonplace in these families as they cope with increased crime levels and the
strain caused by dislocation.
For a family, a foreclosure is devastating. For a state, unmitigated foreclosures destroy communities, deprive cities of critical revenue, and cripple the economy. Local governments lose an average of $20,000 on every foreclosure.
All Americans have suffered as a result of the reckless and predatory lending promoted by Wall Street and the banks. Nationwide, homeowners have
lost over $750 billion in negative equity since the crisis began. In California, the massive number of underwater borrowers has impeded our economic recovery, as families are spending everything they have just to hold on to their homes.
The foreclosure freefall and the economic meltdown it triggered were not inevitable. As the report by the Financial Crisis Inquiry Commission concluded,
the crisis was the foreseeable result of policy decisions pushed by the major banks and Wall Street investors.
Financial deregulation enabled the proliferation of sub-prime and non-traditional loans, which were aggressively marketed to low-income communities. Brokers got bonuses for steering borrowers into risky mortgage loans. In 2006, sixty-one percent of sub-prime loans went to borrowers who could have qualified for traditional loans.
The foreclosure crisis the banks created is not over. In fact, foreclosures in California are expected to increase again in 2012, while home prices are expected to decline even further. The downward spiral in our housing market presents a serious obstacle to any effort to revive our economy.
The best outcome for all Californians is to stabilize home values and keep families in their homes through affordable loan modifications. This reduces blight from abandoned buildings, stabilizes local government revenues, and promotes economic recovery.
The banks do not seem to agree. Only one loan modification is occurring for every 15 homeowners in need of assistance. Banks are continuing to foreclose on families while they are seeking a loan modification. This dual tracking must end to
give borrowers a fair shot at loan modification and avoid unnecessary foreclosures.
The recent multi-state settlement achieved some important reforms of mortgage servicing practices and the foreclosure process. One of those reforms was the elimination of dual tracking, the practice that allows a bank to initiate a foreclosure while a family is still in loan modification. Because the terms of the settlement are only temporary and apply just to the five banks that participated, more must be done to protect families from foreclosure and stabilize the housing market.
What These Bills Will Do
SB 1470 and AB 1602 will codify elements of the multi-state settlement by ending the practice of dual tracking. They prevent a servicer from foreclosing on a family already in the loan modification process. A modification must be denied and
explained before a home can be sold.
These bills establish a process and timeline that require all parties to act responsibly. They do not require lenders to modify loans. They do not grant
modifications to those who cannot afford to stay in their homes. They do not benefit speculators or those who seek to walk away from their obligations.
These bills protect borrowers who follow the rules from unfair or unnecessary foreclosures. They create incentives for greater accountability from all parties. By promoting loan modifications, these bills will help California stay on track on the road to economic recovery.
~ California Attorney General Kamala Harris (Sponsor)
~ California Labor Federation
~ Center for Responsible Lending
~ Community Reinvestment Coalition
~ California Teamsters Public Affairs Council
~ California Nurses Association
~ Service Employees International Union California State Council
~ United Food and Commercial Workers
~ UNITE HERE!
Caitlin Vega, California Labor Federation (916) 444-3676 ext. 17