By Kevin Chiu
The first major move to pressure bankers to modify home mortgages may be developing in California. The action, planned for a vote next week, could be the most significant move yet to force bankers to take responsibility for millions of bad mortgages they issued to homeowners.
The movement could signal a revolt against bankers started in California, where so many other actions are born.
Option Arm Adjustable Rate mortgages and other newly created subprime loans made to home buyers have resulted in the largest epidemic of foreclosures in U.S. history, and have already caused more than 4-million foreclosures nationwide. The proposal would urge cities in California to pull their city’s bank deposits from banks that fail to cooperate with foreclosure prevention efforts.
Only 240,000 loan modifications have been made by lenders since the start of the foreclosure epidemic more than two years ago, according to the U.S. Treasury Department.
The resolution will come to a vote before the League of California Cities at its meeting in San Jose, California next week. The association is composed of all 480 cities in the state of California, who work together to combine resources and influence policy decisions.
The proposal is being offered by Los Angeles City Councilman Richard Alarcon, a former state lawmaker, who is a staunch supporter of foreclosure mediation and has witnessed the foreclosure epidemic in his own neighborhood.
Banks are hearing from home owners, taxpayers and elected officials angry over lenders, who are failing to cooperate with foreclosure prevention efforts. The complaints are being leveled despite federal government financial incentives provided to banks to help homeowners under the threat of losing their homes to foreclosure.
The Treasury Department issued a “name and shame’ list of lender performances two weeks ago, revealing banking giants like Bank of America, modifying only 4% of its loans that qualified for President Barack Obama’s program. BofA purchased the nation’s largest mortgage company, Countrywide, which was the largest single provider of home mortgages in the country before it was hobbled by financial troubles.
“Sometimes a grass-roots effort like this can be more effective than the federal government,” said League of California Cities President Judy Mitchell. The foreclosure epidemic is blamed for leading the nation into the worst economy since the Great Depression. “It’s been an eye-opener for all of us across the country,” said Mitchell.
A series of other actions by lawmakers in California are also paving the way for foreclosure reform. More than a dozen California House members have urged the U.S. Housing and Urban Development Department to push bankers to modify loans. The Golden State is widely recognized as being one of the hardest hit states in the country in foreclosures, and its economy is suffering as a result with one of the highest state unemployment rates in the nation.