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California has been hit hard by the foreclosure crisis, and it’s not over yet. With many adjustable rate mortgages ready to reset, a state that already has 25% of the nation’s foreclosures may be hit again. California hold over 50% of the nation’s ARMs, many of which are about to increase their interest rates, leading to even more foreclosures in the state. The housing programs MHA and HAMP were to provide relief for thousands of homeowners, and yet due to constraining guidelines and an unwillingness to negotiate on part of the banks, foreclosures have increased across the state. As a result, District Attorney Edmund Brown Jr. has taken the initiative on the housing crisis.
Along with negotiating an $8.7 billion settlement with Countrywide Home Loans over fraudulent practices with homeowners, Brown has led the charge on shutting down scam third party loan modification companies that have preyed on desperate homeowners looking for help with their loan modifications. This comes as a relief to homeowners as navigating the murky waters of do-it-yourself modifications has become almost impossible due to the unwillingness of their banks and the vast amount of misinformation or even lack of information at all. After hearing the horror stories of loan modifications gone wrong or of others being scammed by a company that was supposed to help, many borrowers resigned themselves to bankruptcy or foreclosure.
Brown addressed these concerns and more in correspondence that was sent to all California banking institutions. In the letter, Brown chides the banks for not having clear enough guidelines and communication with their borrowers, citing the endless merry-go-round of misinformation, redirecting and lack of communication until it is too late for the borrower and they are forced to foreclose. Brown also cites the bank’s lack of willingness to reduce the principal of many loans as a primary source of foreclosures. While government programs such as Making Homes Affordable and Home Affordable Modification Program are available to the borrowers, they will not qualify for these programs because home values have dropped so much in California that many now owe more than they originally took the loan out for, and their houses have little to no equity. Brown states that the upcoming reset of over a million ARM loans will only deepen this problem.
To better understand the actions of these banks and to hopefully reach a solution before it is too late, Brown has asked that the institutions provide his office with several things, mostly having to do with why foreclosures have increased while the banks continue to rake in federal subsidies.
First, he asks for the number of ARM loans backed by property in California. Of these, he has asked for the number of loans that have negatively amortized, or whose principle balance has grown. Brown also requests information on the steps these banks have taken to address the upcoming crises with the ARM loans, if any, and asks to know what measures have been taken to address the widespread complaints of inadequate customer service and outright deception on part of these banks. He also asks for detailed information on what new loan modification these banks have developed since the beginning of this housing crisis and why they have refused to lower principle for home loans when it would clearly help many homeowners.
Clearly there is much work to be done between state and federal governments and the banking institutions that are in part responsible for this dilemma, but DA Brown’s straightforward addressing of the situation in California is a step in the right direction.
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Tags: california attorney loan mod, california foreclosure, california loan modification, california mortgage modification
California is close to a collapse. Situation is very complicated in this state!