State Legislators Meet to Discuss Foreclosure Crisis
By Christina Villacorte
City News Service
Several state legislators came to Los Angeles City Hall today to take public comment on a bill that would protect families from losing their homes by mandating mediation before a foreclosure can proceed.
Noting that California accounts for 40 percent of all foreclosures nationwide, Assembly Speaker Karen Bass, D-Los Angeles, said she hopes AB 1588 will become law before the end of the year.
The bill would require lenders and borrowers to sit down with a neutral mediator and negotiate a new payment plan within 60 days.
While the dialogue is taking place, the borrower would have to deposit 60 percent of the current mortgage payment into a savings account every month to prove that a modified loan would be realistic and affordable.
If the monitor decided the lender had been uncooperative, the monitor could unilaterally design a new payment plan for the borrower, who could ask a court to enforce it.
Mayor Antonio Villaraigosa, who called Los Angeles “ground zero” in the foreclosure crisis, is pushing hard for the bill.
“Even with the efforts of the Obama administration, foreclosures still outpace loan modifications at a 2-1 rate,” he said. “And of all the loans that could be modified, only 16 percent have been renegotiated, sometimes in a process that takes six months.”
Bass said “the promise of mortgage modification has been too elusive for too many families — families whose taxes, ironically, helped fund the financial industry bailout, and that’s just unacceptable.”
Under the bill, the monitor could negotiate, among other options:
– reducing the principal balance;
– lowering the interest rate for five years;
– extending the mortgage, not exceeding 40 years; and
– deferring a portion of the principal until the home is sold.
Assemblyman Pedro Nava, D-Santa Barbara, chair of the Banking and Finance Cmmittee tht held the hearing in Los Angeles, criticized lenders for rejecting invitations to participate.
He specifically cited Bank of America and Wells Fargo.
“Foreclosures in California and across this country (are) a cancer that is undermining our economic recovery,” Nava said. “The people with the cure are the banks, and so far, they’re missing in action.
“When you are the recipient of billions of taxpayer dollars, the very least you can do is agree to appear in a public forum,” he added.
California has the third-highest foreclosure rate in the nation, with 400,000 just in the past year. Currently, one out of every 144 homes across the state is in some stage of the foreclosure process.
A handful of cities across the country have similar loan mediation programs, which have a 50 to 60 percent success rate in keeping families in their homes. Bass said she hopes AB 1588 will be the first statewide mediation program.