OAKLAND, Calif., Feb. 19 /PRNewswire-USNewswire/ --A plan announced by President Obama in Las Vegas today would send $1.5 billion dollars to five states hardest-hit by the foreclosure crisis. The new funding would give those states the authority to experiment with programs designed to help unemployed homeowners, homeowners who owe more on their homes than they are worth and those homeowners whose situations are complicated by second liens.
"These funds will provide California an opportunity to experiment with innovative solutions," said Paul Leonard, director of the California office of the Center for Responsible Lending. "But they will only provide relief to a limited number of the 1.2 million California families currently seriously delinquent or in the foreclosure process." One out of three California mortgage holders is underwater, most by more than 25 percent of the current value of the home. Borrowers in foreclosure owe on average $140,000 more than the current value of the loan.
"Hopefully the Administration will soon adopt more comprehensive solutions, including a principal reduction component to their HAMP program and pressing servicers to provide greater forbearance to borrowers who have lost their jobs," Leonard said.
California, along with Arizona, Florida, Michigan and Nevada, will split the allocation based on need, and the funds will be administered by state Housing Finance Agencies (HFAs).
In another state-level effort, Senators Darrell Steinberg (D-Sacramento) and Mark Leno (D-San Francisco) today introduced legislation that would require that servicers evaluate and document a borrower's eligibility for a HAMP modification before issuing a notice of default. SB 1275 aims to build upon the existing structure of SB 1137, signed into law in 2008, which required servicers to merely make contact with borrowers before filing a notice of default, and declare that they did so.
"SB 1137 had the best of intentions," said Leonard. "But at the end of the day, its impact was to delay the start of the foreclosure clock, but it did not drive servicers to complete more timely modifications."
Once the foreclosure process begins, it is difficult to bring it to an end other than by trustee sale, when the borrower loses their home. The Steinberg-Leno legislation will help homeowners by ensuring that the foreclosure process does not commence until after an evaluation of a borrower's ability to be helped by HAMP has been completed.
President Obama's HFA funding announcement came on the same day as the Mortgage Bankers Association fourth-quarter National Delinquency Survey. The MBA's latest report found that 17% of all loans in the Golden State are now past due. Further, 1 in 8 borrowers are now seriously delinquent, compared to 1 in 12 a year ago, and 1 in 25 two years ago.
"With numbers like these, California needs all the help we can get," said Leonard. "Whether it comes from federal-level dollars or state-level legislation, California's homeowners and the economy could desperately use it."
About the Center for Responsible Lending: The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions. Visit the CRL California office on the web at www.responsiblelending.org/california.