How bad does it have to get before the banks get serious? The crisis is real and it affects millions of America's working families. Home foreclosures continue to strip our communities of wealth and stability. California continues to have the third highest foreclosure rate in the nation, with one in every 144 homes receiving a foreclosure filing. As if that weren't bad enough, of the existing homes sold in September 2009, 40% were properties that had been foreclosed on during the past year. This housing crisis puts pressure on families, communities, and governments.
Earlier this year, the federal government rolled out the Home Affordable Modification Program (HAMP) to encourage servicers to offer sustainable modifications. The latest round of data, which covers the beginning of the program to the month of September, finds that only 16% of those eligible have received trial loan modifications. You have to be 60 days delinquent before you are "eligible." Of those borrowers in the most trouble, less than one quarter have received a trial modification. This doesn't account for the thousands of people on the verge of being delinquent who are told to wait in line. Unfortunately, this crisis is not close to being over. In the California Bay Area alone, $30 billion worth of option-ARM mortgages are set to adjust in 2010, with an average payment increase of 63%.
With the events of the last two years in mind, I introduced Assembly Bill 1588 in conjunction with California Assembly Speaker Karen Bass. Sponsored by Los Angeles Mayor Antonio Villaraigosa, this legislation will establish a foreclosure mediation program. Under AB 1588, a borrower who receives a notice of default can participate in a loan modification workout program with their lender so they can arrive at a sustainable loan modification. If the borrower is not able to receive a modification it would allow the borrower and lender to work out a reasonable transition plan. Other states have tried mediation and they like it. Studies show that it is not in the best interest of the lender for a homeowner to foreclose. The process implemented by AB 1588 is a win-win for both parties.
With our financial institutions benefiting from billions of taxpayer bailout dollars, the least lenders can do is have a face-to-face meeting with borrowers to work on a reasonable solution. Mediation is not a one-sided concept -- lenders and servicers have every incentive to participate. So what is the better outcome? A foreclosure that wipes out most of the value of a home and puts families on the street? Or a comprehensive modification that encourages long-term stability, where children can stay in their neighborhood school and where the dream of home ownership is kept alive?