The Worst Foreclosure Crisis Calls For Fundamental Changes

June 17th, 2008

The worst foreclosure crisis is raging over the country since the Great Depression of the 30’s. It has called for drastic and fundamental shakeup in the mortgage industry. In California the crisis at present is at its worst but the changes being brokered are too slow to address the magnitude of the problem.

Last winter amidst much hullabaloo a bevy of bills was introduced aimed at regulating mortgage houses including bankers, brokers as well as servicers. Lending practice laws were to be tightened. Some of the bills have seen the light of day but others have got caught in opposition and lobbying. The combination of mortgage bankers, brokers and realtors are a force to contend with and cannot be easily overcome. They strongly urged modification of many clauses in the bills that went counter to their interests. Their argument is that California cannot regulate itself out of this foreclosure mess. The net result of these skirmishes is that the residents of California will find it difficult to qualify for mortgages in the future. Dustin Hobbs spokesperson of California Mortgage Bankers Association comments that the government does have a role to play but it should not be such that will “scare away capital.”

While all this is going on, the foreclosure crisis is going from bad to worse in California. Last week records were made. There was a 6.35% increase in all the loans that were lagging behind 30 days during the first quarter of this year. In 2007 it was 5.82%. The foreclosure rate is one of the worst in the country – 1:20.

The naked numbers have awakened a sense of urgency in lawmakers keeping in mind the political stakes involved – especially in Sacramento. A major showdown is expected on 18th June, when the Senate Banking, Finance and Insurance Committee, of the State, will hear at least 10 mortgage-centred bills. Falling real estate markets have made California the epicenter of the foreclosure storm.

If the bills are passed then California will win the distinction of being a pathfinder in tightening mortgage controls. Prospective borrowers will be meticulously screened before qualifying for loans. Steep penalties will be imposed for lenders who make it difficult for borrowers to refinance and or impose high interest rates that keep floating up. Economic ills are also being attacked so as to improve the employment climate of the state.