Subprime crisis hits home hard
9/10/2008, 5 p.m.
The victims of avaricious and unscrupulous realtors, mortgage bankers and lenders, too many vulnerable African Americans and Latinos were aggressively targeted and harnessed with unsustainable high interest subprime loans, whether they had good credit or not.
More than 50 percent of all loans made to African American borrowers in 2005-2006 were subprime compared to 21 percent to Caucasians. And African American women have the highest rate of subprime loans compared to any other group, according to a report by the Consumer Federation of America.
Subprime loans cost more than prime loans, have higher prepayment penalties and incur escalating increases that eventually result in a mortgage payment higher than the borrower's financial circumstances can afford. Too often refinancing under these subprime loans locks borrowers in debt and does not provide them any financial gain.
I've seen the despair in the faces of families in my district and throughout Los Angeles who have lost their homes after working and scrimping for years to pay their mortgages and provide stability for their families. They were the target of aggressive techniques by mortgage brokers who cared nothing about the risks to them, both financially and emotionally.
More than 17 years ago, when I first became a member of the Los Angeles City Council, I began addressing the troubling issues related to home equity fraud and predatory lending.
In 1991, I persuaded the Los Angeles City Council to adopt a Linked Banking Program to help encourage fair lending practices and regular disclosure of lending information to help borrowers operate on a level playing field.
As African American homeowners started closing the gap and gaining a larger share of homeownership, predatory lending practices began to escalate.
Subprime lending was an outgrowth of the outlawed redlining, both disproportionately and negatively impacting minorities' opportunities to build wealth.
Around 1992, I became aware of, with increasing frequency, equity rip-off scams that were becoming prevalent in certain communities of Los Angeles. Unscrupulous brokers and sales persons were offering loans to homeowners to purchase consumer products, initiate home improvements or pay off delinquent mortgages as strategies to get unwitting customers to sign over the deed of their homes. Often victims of these schemes were elderly homeowners of limited income, but with substantial equity built up in their property over a lifetime.
I was not insensitive to the financial and personal devastation caused by these loans. In 1993, I authored a motion directing the Housing Department to develop a pilot program to assist homeowners threatened with foreclosure proceedings caused by predatory practices. Later I secured the City Council's commitment to support legislation that would strengthen notary public laws.
In November 2002, as subprime lending continued to escalate, I was successful with the support of the local chapter of ACORN, in getting an unprecedented Anti-Predatory Lending Ordinance Pre-emption adopted by the Los Angeles City Council.
Among the provisions in the ordinance were requirements that: · Borrowers receive a "reasonable and tangible net benefit" when refinancing into a high-cost loan.
·Borrowers being offered high-cost loans receive counseling from a certified loan counselor to explain their loans costs and alternatives loans.
High-cost home loans must be based on the borrower's ability to repay, not on the borrower's equity in the house.
In 2005, the State Supreme Court overturned Los Angeles' ordinance by ruling that state law superseded local ordinances. And the scourge continued.
Once elected to the Assembly in 2002, I continued my fight against predatory lending.
In 2003, as the Assembly Member representing the 48th district, I authored AB 485. This measure would have allowed certain populous cities and counties that had determined predatory lending practices were prevalent within their jurisdictions, to adopt ordinances that provided additional protection for borrowers. That measure was held in the Banking and Finance Committee.
In 2004, continuing to be motivated by the exponential growth of subprime and predatory loans that were fueling unprecedented numbers of foreclosures in my district, I introduced AB 901, The Uniform Lending Reform Act.
This measure, which was signed into law by Gov. Schwarzenegger, raised the loan limit for consumer protection on high cost loans. It also requires annual reports to the legislature regarding the district attorney efforts in deterring, investigating, and prosecuting real estate fraud crimes.
Although my efforts to stop the subprime scourge were in the right direction, they were not enough to stem the tide of predatory lending.
The Center for Responsible Lending estimates that more than 2.2 million families who have subprime loans already have lost or will lose their homes within the next few years.
Today's subprime mortgage crisis is the worst fears realized, as entire communities are peppered with unoccupied foreclosed homes, precipitating blight and lowering the home value for all other residents.
It is particularly troubling to me that more than 52 percent of the loans made to African Americans were subprime. That African American women, many who are mothers and the head of far too many households, received 48.9 percent of those subprime loans.
Subprime loans are 18 times more likely to result in foreclosure in Los Angeles County.
It is no mystery why this subprime mortgage fiasco has resulted in the loss of $213 billion in wealth for people of color and the greatest loss of wealth from African American households in US history, according to the Urban Leagues' State of Black America 2008 report.
I feel an obligation and an urgency to continue to push for laws and ordinances to help stop this hemorrhaging of wealth and stability in our communities.
So I acted swiftly when I became aware that bureaucratic red tape at CalFHA could delay subprime borrowers from refinancing their loans under the recently passed Housing and Economic Recovery Act of 2008.
My bill SB 870 is part of that solution. Its passage last week, will expedite the infusion of $1.175 billion into Californians ailing housing industry for the purpose of refinancing subprime loans.
Congress has finally thrown us a lifeline, but its availability is limited.
Among the many provisions of HR 3221, The Housing and Economic Recovery Act, is the appropriation of $11 billion in new tax-exempt housing bond authority for single family and multifamily housing activities.
The authority is only available through 2010. The implementation of any refinancing program would be significantly delayed by the requirement to adopt regulations, which could take from four to six months.
Enactment of SB 870 will provide California Housing Finance Agency (CalHFA) with the flexibility it needs to develop and implement a program to help keep homeowners in their homes without unnecessary delay.
SB 870 authorizes CalHFA to create a program to refinance the loans of distressed borrowers with subprime loans by action of its Board of Directors, following a noticed public hearing and open meeting, instead of through the adoption of regulations.
I placed an Urgency Clause on the bill that allows it to be enacted immediately after the Governor signs it.