Governor Schwarzenegger Should Call Special Session on California’s Mortgage and Foreclosure Crisis Linked to Our Budget Problems

By Ted W. Lieu
Chair
California State Assembly Rules Committee

The state budget crisis is directly related to the foreclosure crisis. It is a straightforward matter of cause and effect.

During the mortgage boom years, millions of unsuitable, risky subprime loans were sold to borrowers, who are now defaulting in record numbers. Lax regulations and lax enforcement set this crisis in motion. According to RealtyTrac, California now accounts for ONE-THIRD of the nation’s foreclosures, with 101,724 foreclosure filings in August, the most of any state (again). This continuing massive wave of foreclosures blew a multi-billion dollar hole in the state budget, caused numerous Wall Street firms to collapse, and pushed the national economy into the verge of recession. The national crisis, in turn, is aggravating the state’s fiscal issues.

It would be a mistake to de-link mortgage reform and the foreclosure crisis from the state’s current fiscal shortfall. They go hand in hand. We cannot solve this unprecedented budget shortfall without mitigating foreclosures and reforming the broken and dysfunctional mortgage system. Risky, unsuitable, and deceptive loan solicitations continue to be sent to consumers. Indeed, given the current crisis, there is additional pressure for mortgage brokers to use unscrupulous means to take advantage of consumers.

Over 60 percent of the subprime loans sold to borrowers – many of which are now defaulting – were originated or sold by entities regulated by the State of California. In order to adequately tackle the budget crisis, we first need to make sure our own mortgage house is in order. Hard-earned taxpayer money was taken to bail out Wall Street because, in part, California’s mortgage system was out of order.

It is time for the Governor to seriously address the mortgage and foreclosure crisis, which occurred on his watch and is continuing to worsen. It is time for a special session on mortgage and foreclosure reform.

Ted W. Lieu represents the 53rd Assembly District. Prior to being elevated to serve as Chair of the Assembly Rules Committee, he served as Chair of the Assembly Banking and Finance Committee. He has been the author of a number of bills dealing with mortgages and problems with subprime loans.

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