Dems want special session on home foreclosures
SACRAMENTO ” Urging swift action to combat a continuing wave of foreclosures, Assembly Democrats on Thursday asked Gov. Arnold Schwarzenegger to call a special legislative session to find ways to help troubled homeowners.
Assembly Speaker Fabian Nunez called the rate of foreclosures in California a greater threat than long-term water shortages or health care reform, the other topics the Legislature is supposed to be addressing in special sessions the governor called in September.
Lawmakers so far have failed to reach agreement on either of those topics.
“It’s a more immediate crisis,” Nunez said of foreclosures. “You better believe this is the biggest crisis we’re facing today.”
California was second to Nevada in the rate of foreclosures filed last month, Irvine-based mortgage research company RealtyTrac said Thursday. More than 50,000 foreclosures were filed in California in October, or one for every 258 households.
That compares to a national rate of one foreclosure for every 555 households in October.
The foreclosures are the most visible symptom of a state housing market that is dropping quickly from the sky-high prices of the past few years. Home prices and sales are declining in most California markets, leaving local governments with less property tax revenue.
The ripple effects of the housing slowdown are being felt throughout the state’s economy. The nonpartisan Legislative Analyst’s Office projects a $10 billion state budget deficit over the next two fiscal years, a forecast that has lawmakers and Schwarzenegger concerned.
Nunez, D-Los Angeles, said those economic ripples could cost state and local governments $4 billion in lost revenue.
“We need to strike right now while the iron is hot,” he said during a Capitol news conference.
Assembly Democrats proposed a legislative package that would assist financially troubled home owners and ensure strict standards for lenders. The bills would:
” Ban prepayment penalties that are sometimes applied when home owners refinance into more affordable loans.
” Increase state oversight of lenders and require them to create a uniform way of dealing with delinquent mortgages.
” Require lenders to send homeowners a list of their legal rights and require them to employ full-time ombudsmen to address complaints and help borrowers who are in financial trouble.
” Restrict some types of loans and mortgage fees.
” Increase the number of credit counselors employed by private community agencies by providing the agencies with more money.
The California Association of Mortgage Brokers supports efforts to prevent foreclosures and protect borrowers, president Pete Ogilvie said in a statement. But he warned the Legislature against going too far and enacting laws that discourage the types of loans that have helped thousands of people buy homes.
The bills could go to an Assembly committee next week if Schwarzenegger called a special session immediately, Nunez said.
He predicted the Assembly could pass the bills by mid-December, with the Senate sending the bills to Schwarzenegger’s desk by year’s end to take effect immediately. Waiting until the next regular legislative session begins in January could delay the bills for months.
A fast-tracked process could severely limit input from Republicans, however.
Republicans in the Assembly and Senate have their annual retreat scheduled for next week.
But Nunez said Democrats, who control both houses of the Legislature, could pass the bills with simple majorities and thus would not need Republican support.
Threatening to bypass Republicans “is like saying we’re not concerned about the issue. That’s just outrageous,” Senate Minority Leader Dick Ackerman said. “There is no need for a special session. I think Nunez is doing this to try to get publicity.”
Ackerman, R-Tustin, said foreclosures are a serious problem but often result from foolish decisions by borrowers and lenders. The Legislature must take care not to overreact and harm the long-term lending market, he said.
Schwarzenegger spokesman Aaron McLear said Nunez’s news conference was the first he had heard of the Democrats’ proposal.
He could not immediately say whether Schwarzenegger, a Republican, would agree to a special session.
The Center for Responsible Lending predicts California will see about 500,000 foreclosures from all loans made between 1998 and last year. The Durham, N.C.-based consumer advocacy group projects more than one-in-five subprime loans in California, or those made to borrowers with shaky credit histories, will end in foreclosure.
In a report last week, the center estimated that California cities will see 180,000 foreclosures just from loans made in 2005 and 2006.
The Democrats’ bills would affect about 60 percent of lenders regulated by the state, said Assembly Finance and Banking Committee Chairman Ted Lieu, D-Torrance.
The legislation would help limit practices in the future that helped promote the mortgage meltdown.
He also said the legislation should be structured so it applies only to owner-occupied homes. In that way, it would not become a bailout for those who were trying to get rich quick from soaring housing prices and got stuck with their properties when the market began to dive.
“We don’t want to help speculators and investors,” Lieu said.
The speculators who were trying to take advantage of the market are a big reason for the housing troubles now facing California.
In the Sacramento area, for example, investors from the San Francisco Bay area flooded the market over the past five years, sometimes buying multiple houses with little or no money down.
Their game was to get in and out quickly, buying homes and then flipping them within months to take advantage of home prices that were experiencing double-digit increases.
Many of the speculators are now stuck, facing mortgages they can’t afford and homes that are worth less than when they bought them. Much of that speculation occurred in new neighborhoods that are now riddled with abandoned homes.
At the same time, historically low interest rates allowed lenders to offer risky mortgages with low introductory rates that are now resetting, swelling monthly payments. Many of the people who took advantage of those low initial rates cannot afford the higher payments.
The lending and buying mania of recent years helped inflate home prices beyond practical levels of affordability.
The Democrats’ proposal came the same day Schwarzenegger announced a $1.2 million campaign to tell homeowners about options that could help them avoid foreclosure. Both he and Nunez cited RealtyTrac’s projections that about a half-million Californians will see a jump in their subprime interest rates in the next two years.
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