sacramento -- With California facing its highest foreclosure rate in 20 years, consumer advocates are pressing the state Legislature to tighten standards used by lenders for approving loans and help consumers already in danger of losing their homes.
The state Senate Banking, Finance and Insurance Committee is holding a public hearing today on the mortgage meltdown, ensuing credit squeeze, their effect on California and what new laws are needed. This comes as the Calabasas-based giant Countrywide Financial Corp. and other lenders began layoffs and other lenders took action to cut back new loans they consider too risky.
This is the third hearing this year led by committee Chairman Michael Machado (D-Linden), who is backing a bill to require lenders to ensure home buyers can meet their monthly payments, even as rates increase in the future. But there's more to do, he said.
"We have worked hard this year to put protections in place that will stop another sub-prime collapse from harming future California homeowners," he said. "It's time to take a look at what we can do to help the borrowers who obtained risky loans before these protections were in place."
Machado said he was seeking testimony today from more than a dozen economists, bank executives, consumer advocates and regulators to come up with ways to restructure loans to avoid future defaults. He said the state needed a strategy to keep people in their homes and protect thousands of jobs in the construction and housing industries.
Consumer groups and individuals who say they have been victimized by questionable lending practices are expected to be in Sacramento today to tell lawmakers they need help, including emergency funding for foreclosure-prevention counseling and support for private efforts to renegotiate high-interest adjustable-rate mortgages.
"California has seriously lagged behind other states in its response to the meltdown in the mortgage market," said Paul Leonard, California office director of the Center for Responsible Lending in Oakland. He noted that 36 other states had adopted rules that apply new federal lending guidelines to state-licensed lenders and brokers.
State regulators bristled at the criticism and said they were close to finishing new rules that lock the federal loan-review procedures into state law. A spokesman for the mortgage industry stressed that companies, responding to the market, had toughened lending standards independently.
