Lawmakers And Foreclosures In California

The lawmakers are in a buzz trying to shake up the sub-prime mortgage group. Meanwhile unperturbed the juggernaut of foreclosure rolls on with accelerated speed crushing its victims. It had been expected that the Bush administration’s steps of freezing rates for five years would have the desired effect but the rising foreclosure figures have belied that expectation. It seems to have shelved the issue and not solved it. The fear of recession is looming large.

The AB529 was approved by the Assembly introduced by Assemblyman Alberto Torrico (D-Fremont). It rules that the lenders must provide the borrowers with adequate warning well ahead about impending rate increase. Currently lenders can hike rates with only 25 days warning. Some lenders are considerate and give time but others are not. It depends on the wish of the lender. This was a first step taken on an emergency basis. Meanwhile debates are on about fundamental changes to be introduced to place a total ban on certain practices of the mortgage industry.

A survey showed that many had been unable to keep pace with mortgage payments because of economic depression in the concerned region. About 80,000 houses were repossessed in California during the last quarter of the previous year. This was a 115% increase from 2006. The percentages in the Bay Area were relatively higher still.

Ted Lieu (Democrat – El Segudo) is chairperson of Assembly Banking Committee who is one of the architects of the bill along with 36 Democrats including the Speaker of the Assembly Fabian Nunez (Democrat – Los Angeles), commented that mortgage frenzy during the previous years is responsible for this catastrophe that has wrought havoc to the state and national economy. He added that they have started the process of ‘cleaning up this mess’.

The provisions of the bill will ban payoffs to mortgage brokers who lured customers into costlier loans for added gains. Before advancing loans, the lender will now be expected to measure the ability of the borrower to repay over the time span of the loan. Negative amortization loans will be banned in which the borrower pays less than the accrued interest. Many consumer groups are backing the bill.

The California Association of Mortgage Bankers is closely watching matters and the experts are cautious about the outcome of too much government interference in the private lending sector. Meanwhile global markets are in a tizzy as the federal bank gears into action.

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