Moving Mortgage Relief To The Top Of The Agenda

Over the weekend, Assembly Democrats were very firm in their desire to see significant mortgage reform as part of any special session in the Legislature in November. This is a crisis for the state that has a large impact on the greater economy. At a recent speech I attended, Bill Clinton estimated that each foreclosure costs the economy $250,000 in lowered property values, maintenance and opportunity costs. So demanding real mortgage reform is keenly sought. The Assembly has been screaming for this since September 2007, and the unholy alliance between the governor and mortgage banking interests has squashed any real reform. And in the meantime, foreclosures have skyrocketed in the state. One in three homes experiencing foreclosure in August was in California, affecting over 101,000 homes (or one every thirty seconds). The news got better in September, but only because of the one meager law that the governor allowed to get through, which included a 30-day waiting period where banks must contact the borrower in question before introducing foreclosure filings. That's a stopgap measure, and if nothing further is done, October and November will show a spike.

Here's a portion of the letter to the governor from Assembly Dems.

We understand you are considering calling a special session to address the state budget. Four billion dollars of last year's budget deficit is attributable to the foreclosure crisis and billions more will be lost this year if nothing is done to address the crisis. The special session would be an appropriate time to address California's mortgage system.

Stabilizing the mortgage mess doesn't just make economic sense, it's a moral imperative. Unless you want Arnoldville tent cities popping up throughout the state, something must be done and as soon as possible. And while this is best determined at the federal level, we have the ability to go to great lengths to fix this, as other states like North Carolina and New York have done.

Arnold vetoed AB 1830 and consigned homeowners to a pretty cruel fate. He needs to be pinned with that failure and pressured to change course. I'm glad that Democrats in the Assembly are making it a priority.

Pass AB1830 To Help Fix The Financial Crisis

The big story today continues to be the Bush/Paulson bailout bill, which is now being debated on Capitol Hill. In calling my representatives yesterday, Rep. Waxman seemed very wary of giving away $700 billion dollars to the Treasury Dept. without oversight or judicial review. Sen. Boxer's statement still buys into the "need for speed" that is accelerating this legislation in an effort to sneak through something very bad, but she does hit the real genesis of the crisis.

In addition, we must get to the root of the housing crisis and work to keep people in their homes through refinancing; if we don't, housing prices will continue to freefall and we will still be in a mess.

In California, we have more foreclosures than any other state-in August more than 101,000 Californians received foreclosure notices and more than 33,000 lost their homes.

If the American taxpayers come to the rescue in this financial crisis, you have to provide assurances that they aren't just taking on bad debt and further jeopardizing their future.

The housing crisis is the first mover here. Lenders and financial industry actors had an extreme need to get people into mortgages, no matter their income or ability to pay, and they sweet-talked them into teaser rates and ARMs with no money down and low opening monthly payments. The idea was to accumulate as many mortgages as possible to package them into mortgage-backed securities to sell overseas. It was a bad bet predicated on perpetual growth in the housing market, and when it crashed there was no flight to safety.

The most important protection for taxpayers comes with protection from the types of lending schemes we saw in the housing market, and that starts not just on Wall Street, but in the states. Aggressive regulation of the housing market in California will go very far to protect against such a crisis from happening again. The legislature passed AB1830 to address exactly this issue, and today Asm. Ted Lieu, the author of the bill, writes Governor Schwarzenegger urging him to sign it.

As you have said in advocating for budget reform, "Enough is enough!" Similarly, the past few years have shown the consequences of a system that failed to effectively regulate and reign in the out of control subprime mortgage industry. The laissez-faire policies previously advocated by much of the industry have turned out to be disastrous. As with budget reform, we need effective mortgage reforne. "Enough is enough!"

To much of the industry's credit, many within the industry and Wall Street recognize that they need better regulation. That is why the following major industry institutions (collectively representing thousands of financial institutions) have all gone neutral on this bill and many of them have contacted your office asking you to sign this bill: The California Bankers Association, California Mortgage Bankers Association, California Independent Bankers, California Credit Union League, and the California Financial Services Association [...]

AB 1830 provides consumer protections for subprime loans while maintaining access to credit and homeownership. This carefully crafted bill is the product of dozens and dozens of meetings and discussions with industry and consumer groups over an eight month period. Through our efforts to craft a balanced approach the leading organizations in the financial and banking industry have gone neutral on this bill. Although a minority of groups still oppose, such as the mortgage brokers and realtors, we have taken several of their suggestions and have worked hard to try to accommodate their concerns.

AB1830 would put mortgage brokers themselves on the hook for their predatory practices, imparting to them a fiduciary duty which would subject them to potential civil suits and loss of license were they not to put the economic interest of the borrower first. It would end the practice of yield spread premiums, which actually financially incentivized brokers to put borrowers into riskier and more costly mortgage options. It would prohibit steering prime borrowers into subprime loans, a common practice. It would ban "negative amortization" loans that would cost the borrower more for the loan even after their initial payments. It would increase enforcements, put caps on prepayment penalties, and go very far to prevent the kinds of abuses that led to this crisis in the credit markets.

It's essential to the future of your stock portfolio as well as the future of the state's economic picture to pass AB1830. The Governor should do so as soon as possible.