(Justin Sullivan/Getty Images)

Today, the California state Legislature is scheduled to vote on a package of bills to protect homeowners at risk of foreclosure. The legislation is backed by the attorney general, but faces criticism by the California Bankers Association and others who say it will “encourage frivolous litigation.” The action comes as a new report finds 11 percent of borrowers in the state at risk of foreclosure.

Guests:
Christopher Thornberg, founding partner of Beacon Economics, an independent economic research and consulting firm headquartered in Los Angeles
Stuart Gabriel, director of the UCLA Ziman Center for Real Estate and Arden Realty chair and professor of finance at the UCLA Anderson School of Business
Paul Leonard, California director of the Center for Responsible Lending
Mike Eng, California assemblyman, 49th District (D-Alhambra) and co-chair of the Joint Conference Committee on the California Foreclosure Crisis

  • Kevin in Santa Cruz

    As the ignored group of homeowners who were responsible in their loan choices but who are now underwater, I’m very tired of the emphasis on those who face foreclosure – where is the help for those of us stuck with a loan serviced by one bank, but “owned” by another?  The bill should include a provision to force in place loan modifications for those of us with good credit, regardless of who owns the loan vs. who services the loan, especially if Fanny or Freddie are not involved.

  • James Ivey

    I’m having difficulty following Mr. Thornberg.  Every time a statistic is mentioned, he counters that there are “many” exceptions — suggesting or even stating that the statistic is misleading — but does not quantify “many”.  He also discounts anecdotal evidence but fails to provide more than vague hints of numbers and, at best, anecdotal counter evidence.  As one of the discounted anecdotes myself, I find that a bit offensive.

    In addition, the demonizing of irresponsible borrowers is equally offensive.  During the height of the boom, I received unsolicited offers to refinance at a rate of about 1 or 2 per week.  If I didn’t have a minor in mathematics in my undergraduate degree and a couple decades of borrowing experience, I might have been one of those horribly irresponsible borrowers, taking money from the helpless professionals who make lending decisions professionally and many times each day.

    I think the California Homeowner Bill of Rights is great and overdue.

    • Mike

      The fact is there are many who now claim that they were ‘tricked’ into mortgages that they couldn’t pay though at the time they were bragging to their friends how easily they dummied up loan  information.  Or about how many properties the were leveraging upon one another.  Some walking away from their intentional self created debt with cash from a prior free flowing line of credit only to tun around and buy for cash a depressed property somewhere else under a relatives name. 

      All it took to be “an irresponsible borrower” was an abundance of greed and a lack of personal ethics and concern with knowingly participating in fraud.

      There are no saints on either side in this mess. 

  • Guest

    By slowing foreclosure are we not denying opportunity for others to enter the housing market?  Is home ownership a necessity?

  • Doug

    Let me get this straight Mr. Thornberg, everything is fine, all the shady practices that caused a major financial collapse have been addressed. Lets just let the banks do what they do and they’ll do the right thing? It is pretty audacious to peddle this tripe while real people’s lives are ruined. Dishonest borrowers, are you kidding me? I really love how the banking industry and it’s henchmen want America to believe that it was people who got mortgages they couldn’t afford that brought about this crisis.No one is buying this trash arguement. I recommend  everyone read the “Big Short” by Michael Lewis and then support any legislation that regulates these swindlers.

    • Eric

      For the record, Mr. Thronberg is one of the few prominent economists who predicted the housing crash in California when almost everyone else was in denial (around 2006).  He knows what he’s talking about. 

  • The economic crises would have been over years ago if judges would have been given the power to renegotiate the base of the loan in bankruptcy court as a condition of the bailout. A judge could then decide if the person was deserving or abusing the system. The banks drove up the mortgage prices in the appraisal process and are not innocent bystanders in this. Consumers need protection from the banks since they control the entire process. When the bubble burst the banks should have had to share the the loss since they help create the bubble.

  • Kenoli Oleari

    Remember how mortgages work.  Most people think, I suspect, that money lent out in mortgages comes from deposits and other assets held by the lending bank.  In fact, nearly all money lent out in mortgages is created by those banks with the permission of the Federal Reserve by simply by simply entering a value in the mortgage account.  Thus banks are collecting interest on loans of money that never existed before that loan was made.

    Of course, it was to their huge advantage to lend so much money during the run up to this crisis, knowing that they could lend even more money they didn’t have in equity lines and other instruments so lenders could keep paying the banks.

    That banks are allowed to do this through our federal banking system is a huge privilege, which the banks have gone a long way through this whole mortgage crisis to dishonor.  Wouldn’t all of us love to able to lend money we don’t have and collect interest on it?

    I think people need to remember that in foreclosing on a home, banks are turning created money for hard assets.  Refinancing a mortgage for a lower principle means giving up some of the money the bank created when they made the loan, resulting simply in their ability to collect less interest on an asset they never held.  However, foreclosing on a home, turns some of the fictitious money into hard assets.   Given the way our banking system works, holding the assets of foreclosed homes, or hard cash the banks get for selling those homes, the banks can lend out nearly ten times the amount of those assets.

    Given this, it is clear that foreclosures are worth much more to banks than keeping a loan good through a re-negotiation.

    Lenders are at huge disadvantage through this entire process.  Lenders need every protection they can get to protect themselves from the banks.  These bills are actually a small but greatly needed support to borrowers, helping make the process related to foreclosures is at least more equitable.  We need much more, or even, perhaps an entire revision of our banking system.

    –Kenoli

  • eriksf

    My wife and I just tried to refinance so we could lower our monthly payment by about $250.per month. We have perfect credit, 75k in equity in our home, a higher than average income and we were denied. If we can’t refinance how could someone who really needs it? This seems absurd. These low interest rates are out or reach to the poor and middle class.

    • Suepearlstein

      If you would like to contact me I can see if there is something I can do to help.  Sometimes it depends on where the loan is submitted.  I have been in the mortgage business for 20 years and I know what I can and can’t get through.  If you are interested contact me at suepearlstein@statwideonline.com

  • Anita

    Mr. Thornberg asks: why now, as the home market is recovering?  The answer is so that this will never happen again.   It would be irresponsible to let misdeeds go uncorrected.

  • Larry

    Applicants are told that lenders will only process modifications for lenders that are behind and advised to stop making payments.

    Everyone knows that lenders especially servicing agencies are not dealing in good faith. You send in all the forms and they say the forms are not complete. You ask which ones and they don’t reply. You send in all the forms again and it happens all over until you finally give up. This is why so many applications don’t go to completion.

  • Charles Davidson

    Research published in the Yale
    Journal of Regulation has shown that fee-driven loan servicers, who process foreclosures despite
    serious and frequent documentation gaps, have no fundamental interest either in
    averting foreclosure or in maximizing property value, whether for vested mortgage lenders seeking to
    avoid fire-sale prices upon auctioning or for distressed homeowners. 

     

    Quoting
    the Yale Journal of Regulation:

     

    “Securitized mortgage loans are managed by third-party
    mortgage servicers as agents for mortgage-backed securities investors.
    Servicers’ compensation structures create a financial conflict between them and
    MBS investors. That is, loan servicers have no stake in the performance
    of mortgage loans, so they do not share investors’ interest in
    maximizing the net present value of the loan. Instead, servicers’ decision of
    whether to foreclose or modify a loan is based on their own cost and income
    structure, which is skewed toward foreclosure.”

     

     

    Notably,
    the servicers are highly incentivized to increase their various fees at the
    expense of the defaulting homeowner, at the worst possible time.
    Moreover, the servicer recovers those fees at the expense of the MBS investor
    upon the sale of the foreclosed house, at far below-market value in an already
    seriously depressed housing market.
    In regulation law this is called the “principle-agent problem” and it is
    ultimately responsible for vastly exacerbating the foreclosure rate,
    particularly during an economic downturn. Unlike uneventful loan servicing in
    an up-market, large-scale foreclosure processing in a down-market cannot be
    automated with accuracy.

     

    • Eric

      The article you cite is certainly correct about the perverse incentives of mortgage servicers but it is not clear to me that the legislation just dicussed on Forum would address this problem in a meaningful way.

  • Nizzie

    The Homowners Bill of Rights is just a beginning and is overdue.  Those who are opposed are denying the
    culpability of the lenders in the demise of the housing industry and truly the
    global economy. Many many articles and books have been written documenting the
    fraud.   Lenders created a ponzi scheme with Mortgage
    Backed Securities, Collateralized Debt Obligations, and Credit Defaut Swaps,  making fortunes and then our government bailed
    them out and forgot the homeowner who was the victim.  Then the banks wrote the narrative that it was
    the borrowers fault. That narrative has been repeated so much that it is
    treated a fact.

     During the run up in prices
    of our real estate, EVERYONE that bought or refinanced in that run up of prices
    is underwater today.  30% of all homes in
    California are underwater.  The only
    solution for those homeowners is a reduction of the principal balance to the
    fair market value.   If a lawsuit is a
    means to that end, no one should prevent people from filing such a
    lawsuit.   In my opinion no lawsuit can
    be considered an attempt to “game” the system. 

    Some of the best pieces I
    have read were written by Martin Andelman (Mandelman matters http://mandelman.ml-implode.com), Michael Lewis ( Big
    Short), Matt Taibbi,(Griftopia and Rolling Stone magazine) 
    Ives Smith who writes the blog Naked
    Capitalism. 
    Respected journalist Bill Moyer interviewed the latter on 6/25/12 … “how
    Big Banks Victimized our Democracy. Sen. Bernie Sanders, acting
    under authority of the Dodd-Frank financial regulations, released the
    conclusions of a Government Accountability Office report showing that “during
    the financial crisis, at least 18 former and current directors from Federal
    Reserve Banks worked in banks and corporations that collectively received over
    $4 trillion in low-interest loans from the Federal Reserve.” It is all very
    shocking… how anyone can defend them is unconscionable. All of the above and more confirm the  criminality of the banks and if a victim
    finds a way to sue for this fraud, more power to them.  Additionally, 
    the creation of MERS has caused the County assessors office to lose vast
    sums of money as banks avoided transfer taxes, and possibly created a faulty
    chain of title.   

    The fact that lenders are not making loans has nothing to do with
    the threat of  a lawsuit… It is that they
    can borrow from the Fed at little to no interest and then gamble with it  and they even use taxpayer deposits to gamble
    with those funds … (witness the 9 Billion lost by Chase) .  They play with it rather than make loans to
    us. Then because they are too big to fail, the taxpayer backs them up. There
    are no consequences to the fraud.  Bloomberg
    has reported that Chase has been given 15 billion in subsidies…. My suggestion
    would be that all of us do a class action suit against these mafia like lenders  and demand reduction of principal balances to
    the fair market value.  Then a normal real
    estate market will return.. People that need to move because of life changes
    can then simply sell and buy… A true normal market will return!!

    We are a long way from a normal market.. with 30-50% of all sales
    being distressed and many resales going to investors… it is a true example of
    what Naomi Klein described in Shock Doctrine… The
    middle class is losing their homes to foreclosure and the wealthy are coming in
    and buying them at bargain basement prices.  A transfer of wealth!

     

  • Slappy

    I can’t seem to follow what Mr. Thornberg is talking about at all.

  • Fed up with B of A practicies.

    I tried to remodify a
    loan on a 2 unit building with Bank of America. They took 18 months, lost
    documents at least 4 times forcing me to resubmit each time and start the
    process from scratch with a new representative each time. After 18 months and
    yet again a new representative I asked why it had taken the bank so long to
    come to a decision on this. Her answer, not one I expected was “You want
    an answer, here it is. You’re denied”. It seemed there was little or no
    over site of these Bank of America employees trained for just a few weeks to
    handle most people’s largest asset and the outcome of their lives.

    I was forced to choose
    one of the other alternatives to foreclosure and decided to do a short sale on
    the property. A qualified buyer was submitted to the bank at a market value
    price. The bank took 8 months stalling the file until the buyer walked away. We
    had to start from scratch with a new buyer which we did immediately because we
    had a back up buyer. The bank took 5 months with this new buyer before they got
    fed up and cancelled the sale as well. There had been absolutely no forward
    movement during this time. A third buyer was submitted and after 3 months of
    calling and replacing lost files regularly Bank of America accepted our buyer.
    We were one week from close of escrow when the bank foreclosed on our property.
    Their reason was the investor (FNMA) couldn’t wait any longer. It had already
    been 3 whopping years that Bank of America took processing (really???) the
    file.

    With all our efforts it
    seems the bank did not want a resolution from the get go!

    I was forced to choose
    one of the other alternatives to foreclosure and decided to do a short sale on
    the property. A qualified buyer was submitted to the bank at a market value
    price. The bank took 8 months stalling the file until the buyer walked away. We
    had to start from scratch with a new buyer which we did immediately because we
    had a back up buyer. The bank took 5 months with this new buyer before they got
    fed up and cancelled the sale as well. There had been absolutely no forward
    movement during this time. A third buyer was submitted and after 3 months of
    calling and replacing lost files regularly Bank of America accepted our buyer.
    We were one week from close of escrow when the bank foreclosed on our property.
    Their reason was the investor (FNMA) couldn’t wait any longer. It had already
    been 3 whopping years that Bank of America took processing (really???) the
    file.

    With all our efforts it
    seems the bank did not want a resolution from the get go!

  • jurgispilis

    How about the idea of requiring owners of residential real estate to actually “reside” in the house?  In other words, why not take the speculative aspect out of housing.  Housing, like medical care, education, food, etc, should be a “protected” sector.  Would you allow speculators to drive up the price of transplant organs?
    Why then do we allow speculators to drive up the price of housing?

  • Beth

    I think any homeowner who is trying hard to make payments should be given the serious opportunity to refinance which would seem to be a win win for the bank since all the vacant homes reduce the value of all the homes in a given area.   And if the house is sitting vacant the home isnt making money for the lender.

    Am still waiting to see some lenders who pushed thru bad loans in the first place that they knew had bad paperwork, go to prison.

  • Rich

    If I am a lender and there is a penalty to me in terms of time to foreclose (meaning $) for trying to give a borrower a modification – I just won’t bother. While the intent here makes sense, lenders look at this in a simple way. If you make it impossible for them to collect their money, they will make it tougher for folks to borrow and if they don’t pay, slam down the foreclosure gavel as soon as they can. Is that what people want?

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