Advertise Here

Deliver your message to thousands of readers every day.

Our readers are influential opinion makers - politicians, journalists and activists.

Learn more about ads.

Our latest headlines

Want more? Dive into the archives.

About Us

David Greenwald, Editor. (Contact David.)
CFC Education Foundation, Publisher. (Contact us.)

Got a news tip? Want to write a guest column?
Contact David here.

About California Progress Report.

Founded by Frank D. Russo (Publisher and Editor, 2006-08).

Books

A Call for California Legislation with Teeth to Protect Local Areas from Predatory Lending

Coalition Takes on Predatory Lenders and Oakland’s Foreclosure Crisis
City Has Strong Laws, But State Needs to Step Up to the Plate

By Frank D. Russo

A coalition of legal, housing, policy and community advocates has come together in Oakland with a comprehensive local program to combat the escalating foreclosure crisis in the city and fight continued predatory lending. The Oakland Fair Lending Coalition, organized by the City Attorney’s Office, is a partnership of groups working on the front lines in Oakland to protect consumers, renters and homeowners.

Oakland is unique in some ways in that the city has an ordinance that applies its just cause for eviction laws to lenders and other institutions that protects some tenants. And while the city is doing everything in its power to protect its residences against this national and state problem--by way of counseling and jawboning with lenders and other institutions, there is only so much city officials can do in light of a California State Supreme Court decision that indicated state law preempts localities from regulating loans and taking other action.

Earlier this month, the coalition appeared at City Hall and announced what it was doing, but also made a cry for state legislation. It was answered with a pledge from State Senate President pro Tem Don Perata, who represents Oakland. Perata said in a letter read to the group by his district director: "I look forward to working with the coalition in reviewing their legislative proposals as I am working with Senate colleagues to develop legislation to help protect homeowners against foreclosure."

John Russo, ( no known relation to the author) the City Attorney, laid out some of the chilling numbers about the crisis in Oakland, but they could be in any number of areas in California, such as the San Joaquin Valley and the hard hit area of Tracy and Stockton:

• Number of foreclosures in Oakland, January through August 2007: 337

• Number of foreclosed bank owned houses in Oakland according to Realty Track: 987.

• Notices of default sent in Oakland this month (so far): 345

• Oakland ZIP Code with the highest foreclosure rate during that time: 94621 in East Oakland – 14.9 foreclosures per 1,000 homes

Russo said in response to a question about what can be done locally: "What we can do is more educational…hotlines." A new hotline in the City Attorney’s Office, (510) BE ALERT, serves as a clearinghouse to get homeowners, borrowers and renters the right help from the right organizations. It is staffed Monday through Friday.

Russo continued: "But as far as what the City of Oakland can do in actually regulating these loans, the answer is nothing, because the state Supreme Court has told us that."

He added: "There is, however, one area. We've seen several dozen cases of tenants who are living in homes where the landlord has been foreclosed. The tenants get an eviction notice, even though they have been paying their rent, they get an eviction notice from the lending institution. In that case, Oakland does have a just cause for eviction law, and it applies to the banks and the lending institutions just like it applies to you and me. And that law gives authority to the City Attorney to bring actions against people who violate those evictions laws. It is my intention to bring such actions against lending institutions who do not cooperate with workouts and our law."

But then he focused on state legislation, needed not only to protect Oakland, but other cities and neighborhoods across the state. Russo said that, "It’s time for the California Legislature to pass a stronger state law or give cities the authority to do so."

The Oakland Fair Lending Coalition is shopping for legislative authors in Sacramento so that legislation can be moved starting in January when the legislature reconvenes.

The areas they are drafting or supporting legislation in fall into four basic categories:

1. Real protection against predatory lenders

Ban on prepayment penalties and yield spread premiums (kickbacks by lenders to mortgage brokers for getting borrowers into bad loans).

Assignee Liability (ending the practice of having unfair loans sold to large institutions and Wall Street investors who are then shielded from liability for the actions of predatory lenders - while still making huge profits).

Require diligent income verification and reasonable underwriting practices in the making of loans.

2. Mortgage Broker Reforms

Establish rigorous affirmative duties requiring mortgage brokers to serve the best interests of their customers – just like real estate brokers.

Prohibit brokers from steering families into unnecessarily expensive loans.

Require that any person compensated in any way in the placement of mortgage loans be licensed and bonded.

3. Require Translation of Mortgage Documents for Limited English Speakers--Support AB 512 (Lieber)

Most contracts in California have to be translated if the negotiations are handled in a language other than English. However, there is a sizable loophole allowing mortgage lenders to avoid this requirement. There is no reason why a home mortgage – which is usually by far the most important contract a family will enter – should be exempt from this requirement.

4. Vigorous Enforcement

The State of California should enforce these protections once they pass. However, District Attorneys, City Attorneys, and County Counsels also must have enforcement authority to ensure that the people's business will get done.

Russo said: "What we are looking for are a set of laws that will just require lenders to perform basic sensible underwriting.

"One other area we'd like to see some legislation in is--We would like mortgage brokers to have a duty to the people with whom they are placing loans, just like real estate agents and real estate brokers have duties. It seems to me and the coalition that mortgage contracts should be translated into the language in which the negotiations took place took place. All other contracts in California are required to be in the language under which the negotiations took place. Mortgages, which are probably the most important contract that a family will enter, are exempted from this--shielded. That doesn't seem to make a lot of sense.

"This is not about trying to save people from their own greed. There are people, who in this prior period of easy credit, were greedy and bought things they could not afford. We're not looking at that. Things like yield spread premiums, which are in effect finder's fees for brokers little helpers, prepayment penalties that make it impossible for people to get out of debt if they are able to do so, those types of things need to be banned."

Perata in his letter said: "We need to act. What plays a bigger role in family stability in community health than single housing. Far too many of our friends and neighbors are struggling with the chaos of defaults and foreclosures. Many of them may not have signed loans that they have been informed or understood terms of the subprime mortgages.

"Data shows that the number of foreclosures will continue to rise in the coming months. Hardworking, well intentioned, and responsible homeowners in the East Bay may find themselves facing financial decisions and even if they are fortunate enough to avoid personal crisis, this issue still impacts all of us.

"We simply can't afford to replace dedicated community members with vacant houses and the activity those attract."

Indeed. According to the California Reinvestment Coalition, the number of foreclosures state wise this August was 60,000. They peg the number of properties statewide that may be in danger of foreclosure over the next year due to interest rate resets at half a million.

Posted on October 29, 2007

Comments

Education is the best method to eliminate predatory lending in this country.

By the borrower completing this simple Mortgage Loan Comparison Worksheet when shopping for a mortgage, predatory lending in this country could virtually be eradicated:

http://www.januspresentations.com/MortgageLoanComparisonWorksheet.pdf

Problem is, most borrowers only make a decision once every seven years, so how would they even know what to look for? The loan officer's mission is not to educate, but to get a signature on the bottom line.

Here are the Top 10 Mistakes Mortgage Borrowers Make:

1. Not knowing which mortgage fees the borrower can -- and cannot -- negotiate.

2. Choosing and trusting the first loan officer the borrower interviews.

3. Using an interest-only or "payment option" adjustable-rate loan primarily to qualify for a more expensive house than you could normally afford.

4. Thinking the interest rate is always the main thing.

5. Not comparing the final fees listed on the closing documents to the up-front estimates to avoid the lender "packing the loan" with added-on fees without the borrower's knowledge.

6. Not knowing if the mortgage has a pre-payment penalty - until it's too late.

7. Thinking that renting is always just throwing money away.

8. The borrower does not know if he or she is paying a back-end yield spread or Service Release Premium.

9. Paying for mortgage life insurance, credit insurance or other expensive lender add-ons to increase the amount of kickbacks the lender can receive from various vendors.

10. Paying hundreds of dollars to have a company set up a biweekly mortgage payment plan, something the borrower can generally do for herself or himself -- for free.

From "Kickback: Confessions of a Mortgage Salesman," one of the best-selling books on mortgages on Amazon.com.

Posted by: Ted Janusz at October 29, 2007 07:08 PM

I have to disagree with the author's description of Yield Spread Premiums (YSP) as "kickbacks by lenders to mortgage brokers for getting borrowers into bad loans." As a CPA who now earns his living strictly as a loan originator for a mortgage broker I use the YSP provided by lenders to help my customers get the best deal on a case-by-case basis. In other words, if the client does not have the funds available for closing costs or prepaids, I will raise the interest rate and cover those costs with YSP. I also do an analysis of whether it makes sense for the customer to pay me in the form of Origination Point(s), the only other means besides YSP for this to happen, or allow the lender to pay me with YSP. I would say that about 90% of the time, there is economic benefit to the customer to use the YSP, i.e., it is in their best interest to keep the lump sum cash represented by an up-front Origination fee vs. making slightly larger monthly payments for the next 4-5 years (the "break-even point"). An obvious case, is when the client knows they will be moving or refinancing before the break-even point would ever be reached.
I can be reached at bill@twomortgageguys.com and would be glad to discuss this point with anyone who wishes to have a better understanding of how to use YSP to their advantage, or to educate members of the media on something they obviously do not currently understand or appreciate the benefits of YSP for consumers.

Posted by: Bill Parker, CPA* at October 30, 2007 05:13 PM

This is just nothing but ludicrous scapegoating from high profile attorneys and politicians trying to make a name for themselves after the fact. The bubble has already burst and anyone who is currently involved in the lending industry understands that almost all of the high risk or predatory loans have left the marketplace. Furthermore, anyone who believes ysp to be a problem does not understand mortgage banking and should not be allowed to be involved in regulating.

What needs to happen is LOOSENING of criteria to make it easier for homeowners to qualify for affordable fixed rate mortgages so they can refinance out of the arms and save their homes. Making qualifying for loans more stringent will do nothing but throw more gas on the fire and force more americans into foreclosure. DOES THIS MAKE SENSE???!!! None of this article above makes any sense to me unless we want to go back to a 1970's type of stagnation.

Finally, if the government really wants to find out who is to blame for the current crisis they should look at who lowered interest rates and asked banks to open their wallets and lend very liberally to get us out of the last recession. Oh my gosh it was the...government! Imagine that!

Posted by: Mark at November 10, 2007 10:07 PM

Once again these suggestions for more governement legislation are made someone who does not understand the business. It's ironic it would be comiong form an attorney, a profession that certainly has more than it's share of baggage in the abuse area. I wonder how he would like it if I had the power to restructure how attorneys get certified and operate? It's funny how his proposals would only apply to brokers and not Bank employees also. This is just another example of calls for government to step in and make everything alright when we all know that will just make matters worse. Let the free market sort it out as it already has you pinhead.

Posted by: Gaius Wickser at November 30, 2007 09:26 AM

Get Email Updates

Want the California Progress Report by email? Once a week, we'll send you the latest and greatest headlines.

Stat tracker