New data from Mortgage Bankers Association clarifies California’s crisis, underscores need for immediate legislative action
OAKLAND , Calif., Sept. 6 /PRNewswire-USNewswire/ — The 2nd Quarter National Delinquency Survey, released today by the Mortgage Bankers Association (MBA), shows that California mortgage loans entering foreclosure have reached 25-year highs, with subprime borrowers bearing the brunt of the storm.
The MBA linked market factors such as declining home prices and an increase in housing inventory to the grim foreclosure situation in California, but failed to acknowledge the risky products and deterioration of lending practices in their own industry. “Brokers and lenders pushed risky products that maximized their profits, but lost sight of the basic fundamentals of lending,” said Paul Leonard , director of the California office of the Center for Responsible Lending. “Subprime borrowers were set up for historic levels of failure.”
While foreclosures on all types of loans have increased in the Golden State , foreclosures in the subprime market are especially severe. CRL analysis of the MBA report shows that the second quarter subprime foreclosure rate is the highest-ever in 25 years, topping the most recent record quarter, which was the first quarter of 2007. MBA’s data also show that foreclosures — both for all loans and subprime loans — increased about 200% over last year.
Unlike other states, California has not acted to stem the foreclosures or tighten safeguards for borrowers. “It’s time for California’s elected leadership to act to reduce the foreclosures and the economic declines that are sure to follow,” Leonard said. In response to the record level of foreclosures facing California homeowners, it is imperative that California works immediately to provide assistance to borrowers in crisis and enact legislation or regulation that will protect consumers in the future. Specific recommendations include:
— Providing emergency funding for housing counselors and attorneys to assist borrowers in negotiating more favorable mortgage terms; — Collecting data to track lender’s efforts to avoid foreclosures and establishing long-term affordable mortgages for borrowers; — Establishing lending standards where borrowers are qualified based on the fully-indexed interest rate, verified income, reasonable debt-to income assumptions and mandatory impoundment accounts for property taxes and insurance; and — Banning subprime prepayment penalties, which lock subprime borrowers into the subprime market.
Last December, the Center released comprehensive research on the performance of the subprime market that projects 2.2 million homeowners with a subprime loan will lose their homes to foreclosure nationwide, with California representing approximately 460,000 of those losses. That study, “Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners,” is available at http://www.responsiblelending.org .
About the Center for Responsible Lending
The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation’s largest community development financial institutions.
SOURCE Center for Responsible Lending
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