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California plan to stem foreclosures has critics; bail out for banks, not owners

 
 
Reply Wed 14 Jul, 2010 09:41 am
July 14, 2010
California plan to stem foreclosures has critics
By Jim Wasserman - Sacramento Bee

A $700 million state plan to prevent 40,000 California foreclosures came under fire Tuesday from activists who called it another bailout for the nation's largest banks.

The charges, made at a Capitol news conference, and later to leaders of the state's affordable housing bank, marked fresh tensions over a loan crisis still stubbornly resistant to government solutions.

Representatives of statewide unions, churches and community groups said new state plans to partially pay off mortgages of struggling homeowners will largely subsidize bank losses and leave owners still owing too much to avoid foreclosure. Groups including the Service Employees International Union and One LA-Industrial Areas Foundation want banks to absorb more losses in trimming mortgages to today's lower market values. The financial practice, widely resisted by lenders, is called principal reduction.

"Our concern is this plan provides far too much funding to investors and banks in return for mortgages to be reduced," said Yvonne Mariajimenez, a One LA-IAF representative addressing directors of the California Housing Finance Agency on Tuesday.

CalHFA, launching the nation's biggest principal reduction program on Nov. 1, will spend $420 million to trim mortgages by up to $50,000 each. Lenders are being asked to match the state's contribution, jointly cutting mortgages to a level where owners aren't tempted to walk away.

No one knows how banks will respond, though CalHFA staff described "positive" meetings with them. But even a CalHFA board member, Paul Hudson, chairman and chief executive officer of Broadway Federal Bank in Los Angeles, expressed doubts that lenders would step up to CalHFA's requests.

"I'm not even sure banks are committed to 50-50," he said.

Responding to critics Tuesday, CalHFA defended its 50-50 formula as a best hope to lure participating lenders. "Our goal is to push them as far as possible. But if we we offer them 6 cents on the dollar and no lender participates, no borrower gets helped," said CalHFA project manager Diane Richardson.

CalHFA's new "Keep Your Home" initiative is part of a U.S. effort to slow foreclosures in states hardest hit by the housing meltdown. The U.S. Treasury Department allocated $1.5 billion for new trials in California, Arizona, Nevada, Florida and Michigan. Yet fierce divides abound about how to negotiate solutions that involve banks, homeowners and taxpayer money.

CalHFA officials held firm Tuesday, rebuffing calls to change plans that haven't been tried yet. Richardson directed critics to send their suggestions to the agency for possible funding out of $32 million set aside for alternative ideas.

Generally, Sacramento-area couples earning $70,000 or less, or singles earning $61,000 or less, are eligible. But help is largely for homeowners struggling with loans they used to buy their homes, rather than those who refinanced.

Activists Tuesday called the policy unfair to thousands who did cash-out refinances during the housing boom. They argued that many people were solicited by predatory mortgage brokers and lenders harvesting lucrative fees. Others said refinancing paid off credit cards, further strengthening financial institutions. Still others cited refinances for tuition and medical debt.

But CalHFA's Richardson said the agency felt it had to draw a line. She said, "We didn't feel we could decide who cashed out for a good reason and who didn't."



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Type: Discussion • Score: 3 • Views: 1,886 • Replies: 4
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woiyo
 
  1  
Reply Wed 14 Jul, 2010 10:59 am
"Groups including the Service Employees International Union and One LA-Industrial Areas Foundation want banks to absorb more losses in trimming mortgages to today's lower market values. The financial practice, widely resisted by lenders, is called principal reduction. "

Great idea. Since it such a great idea, why doesn't SEIU reach into it's Bank accounts and payoff the mortgages for it's members.

Amazing!

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JPB
 
  1  
Reply Wed 14 Jul, 2010 11:09 am
Quote:
CalHFA, launching the nation's biggest principal reduction program on Nov. 1, will spend $420 million to trim mortgages by up to $50,000 each. Lenders are being asked to match the state's contribution, jointly cutting mortgages to a level where owners aren't tempted to walk away.


This is really the only incentive here for the banks to participate at all. Their holdings are saturated with properties that people are walking away from. The banks don't want to own any more real estate that they can't sell so finding that point on the curve where folks stay in their homes and continue paying the mortgage is the best solution. Is that point equal to $100,000 against the principle with half coming from the banks and half coming from the taxpayers?

I have no idea...
dyslexia
 
  1  
Reply Wed 14 Jul, 2010 11:58 am
@JPB,
so again again, the few remaining tax payers bail-out the banks. just by the way california is spending can state bankruptcy be far behind, then who bails out the state?
JPB
 
  1  
Reply Wed 14 Jul, 2010 12:10 pm
@dyslexia,
it depends on if you see it as bailing out the banks...

The banks can end up owning half of CA if they foreclose on all the underwater mortgages that people are walking away from. They have an incentive to participate, but not much of one.

I'd be pretty p'od if I was a CA taxpayer. I do understand why they're restricting the funds to those in original (not refinanced) mortgages. It's a flippin' mess but I think they need to do something to get the banks to participate.
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