Lawmakers To Get At The Root Of Foreclosure Problems

January 28th, 2008

California is one of the top rankers facing the foreclosure tornado. The last quarter of 2007 seems to have broken all previous records. Experts are apprehensive that things will be worse this year as interest rates go up making it impossible for borrowers to manage their finances. The fall out is growing number of vacant houses that are attracting crime, depressing taxes and real estate prices in the entire locality. This fall in the property market makes it difficult for others to sell their units and stave off foreclosures. It is a vicious circle.

The lawmakers in California are desperate for solutions. They are processing two bills (SB 926 introduced by Senate President Pro Tem Don Perata, Democrat from Oakland and AB 529 introduced by Assemblyman Alberto Torrico, Democrat from Newark) laying down certain rules that lenders have to follow before foreclosing. Notice will have to be sent to the borrower well ahead giving information about the details of rate hike. Either the lender or its service agency will have to detail the particulars with explanations. That apart, before marking delinquent mortgages as default the lenders would have to sit across the table with the borrowers to find out how foreclosure can be avoided.

The concern of the lawmakers is understandable but the steps are inadequate. The entire mortgage set up needs to be split open to find out how both sides can benefit. A one sided approach will not suffice to get at the roots of the problem. In a falling market the lenders lose out heavily foreclosing on a property. It is to their interest to see that mortgage keeps running and there is a cash flow. Many borrowers cannot keep their houses even at the present rate. That however requires a different approach of tackling the issue of correct verification of income as well as predatory lending and teaser rates.

While the debate is on, the mortgage lenders and their servicers in Sacramento are expected to be more proactive and show that they are genuine in their efforts to stop foreclosures. Lenders have taken the initiative in arranging for counseling and modification of loans but as yet the number of foreclosures have not declined – that is no visible effect is tangible. After all the proof of the pudding is in the eating and that is where there is a gap.