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Council and counseling

The city shouldn't bail out homeowners facing foreclosure, but it could help them get advice.

August 24, 2007

On Tuesday, City Councilman Richard Alarcon called an emergency hearing to discuss the effect of rising home foreclosures on Los Angeles and to assess what the city might do to help at-risk mortgage borrowers.

The short answer: not a whole lot. Mortgage industry regulation falls under state and federal jurisdiction, so the council's power to help borrowers is limited. One widely publicized proposal in Alarcon's preliminary action plan, calling on the city to establish a $5-million revolving fund for loans no larger than $10,000 to "help homeowners on the verge of foreclosure," is particularly ill-advised. But some of the other proposals, such as continuing to bolster foreclosure-counseling options for borrowers, deserve consideration when the council revisits the issue this fall.

Nothing gets blood boiling like the mention of government "bailouts" for sub-prime borrowers, and with good reason. Using public funds to rescue buyers who assume more debt than they can afford (and at terrible terms) rewards borrowers' and lenders' irresponsible behavior and props up an overpriced housing market that probably deserves to fall a bit. That's the main reason to abandon the small-loan idea.

Another is that, in a region where the median home price is hovering over $500,000 and many buyers put little or no money down to purchase their houses, mini-loans of up to $10,000 aren't enough to help sub-prime borrowers "save their homes," as Alarcon says he wants to do. Toss in that no one's sure where the $5 million will come from or how effective the city will be at collecting repayment, and the proposal looks more and more like a nonstarter.

Devoting more funds and attention to boosting foreclosure counseling -- as of now, the plan seeks just $100,000 -- is a different matter. The nonprofit groups that provide counseling, such as Los Angeles Neighborhood Housing Services, Operation Hope and more than a dozen others in the city, serve as triage centers for ailing borrowers, making quick assessments of their financial situations and, if they qualify, helping them negotiate with lenders for better terms on their mortgages. That's a task that can prove daunting for a homeowner acting alone.

At their best, counseling programs don't subsidize irresponsibility. Los Angeles Neighborhood Housing Services Chief Executive Lori Gay, who spoke at Tuesday's hearing, says her organization advises about 80% of the strapped borrowers who call to sell their homes and offers to help them do so in a way that will best preserve their financial well-being. It's not a rosy picture. It is a realistic one. Making Angelenos aware that such counseling services exist is a fine idea.

Alarcon says he also wants to pressure federal and state authorities to keep closer tabs on lending practices. This too makes sense. Any effort that helps consumers borrow knowledgeably and responsibly is a down payment on a brighter homeownership future for Los Angeles.

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