OAKLAND, Calif.—October 7, 2008—Gov. Schwarzenegger should make mortgage reform a key part of
his efforts to address California’s budget and financial woes, according to a coalition of consumer,
research, and policy organizations.
The groups maintain that the state’s financial crisis will not abate until
there is a real reduction in the number of mortgage foreclosures.
After vetoing the strongest of the Legislature's mortgage bills two weeks ago, the governor has scheduled
a meeting with leaders of the California Senate and Assembly to discuss California’s budget tomorrow.
“California is home to 1,300 foreclosures every business day, which are pushing housing prices down,
eroding wealth from millions of homeowners and draining the state and local governments of critical
revenue,” said Norma Garcia, Senior Attorney for Consumers Union. “Something must be done to save
our neighborhoods and stop the erosion of the economy. We urge Gov. Schwarzenegger to lead a bipartisan
push to get foreclosures under control.”
The coalition proposes a comprehensive foreclosure and mortgage reform agenda including:
180-Day Foreclosure Moratorium – We need to hit the pause button on foreclosures until
programs like FHA’s new Hope for Homeowners refinancing initiative gets off the ground and the
federal government’s new $700 billion Wall Street bailout have had a chance to reinvigorate
mortgage markets.
Mandatory Affordability-Based Modifications – The governor should demand that all servicers
implement affordability-based modifications such as the Federal Deposit Insurance Corporation
(FDIC) is doing with the IndyMac portfolio, and as Bank of America will be doing beginning
December 1, with some troubled Countrywide mortgages. These two models make clear that
wide-scale modifications are possible, and should be mandatory to avoid more foreclosures and
stabilize the economy.
Transparency and Accountability –The governor should collect and report detailed data on each
company’s success in providing long-term affordable modifications and foreclosures. The
Governor has failed to provide company-specific accountability for his previously announced
initiatives.
Special Session Mortgage Reform Legislation Modeled on AB 1830 – If the Legislature goes
into special session, effective mortgage reform should be at the top of the agenda, starting with the
carefully-crafted AB 1830. Assemblymember Ted Lieu's (D-Torrance) legislation was a
significant compromise between consumer and lending interests and included key reforms, such as
establishing that for all home loans, brokers have a fiduciary duty to their clients and must put the
borrower's economic interests ahead of their own. Brokers would have also been prohibited from
steering borrowers to loans that are more costly than what the borrower would qualify for. AB
1830 also would have added to recent federal regulations by capping the size of prepayment
penalties, the expensive exit fee that traps borrowers in subprime loans.
“California is at the epicenter of the foreclosure crisis,” said Emily Rusch, Advocate with CALPIRG, “and
it’s not over yet. Without action, 200,000 option ARMs will lead to yet another huge wave of foreclosures.
To protect California consumers and our economy, the governor and Legislature must act to prevent
foreclosures in the short-term, and adopt reforms to prevent a crisis of this magnitude from ever
happening again,” Rusch said.
AB 1830, considered to be the centerpiece of the Legislature’s mortgage reform bills, was vetoed by the
governor two weeks ago. Other vetoed bills would have given homeowners better notice before an
adjustable rate mortgage adjusted to a higher rate and would have strengthened the Department of Real
Estate’s oversight and enforcement of mortgage brokers.
“California’s budget woes stem from the lack of revenue the state has been able to bring in trough
property taxes, which can be directly attributed to the hard-hitting impact of the crisis to our state,” said
Ronald Coleman of California ACORN. “It is in Gov. Schwarzenegger’s best interest to fix this problem
for our state’s economy and protect our families. So far, he has done virtually nothing and the problem
continues to get much worse.”
