The Los Angeles City Council is poised to vote today on a plan to help distressed homeowners in the northeast San Fernando Valley by putting up city money for "silent second mortgages" that could encourage financial institutions to modify home loans.
The pilot program would make available $1 million from the Community Redevelopment Agency to help 20 to 30 homeowners in Pacoima and neighboring communities who are in foreclosure.
"If we can make this work . . . we can keep more families in their homes and that's better for the whole neighborhood," said City Council President Eric Garcetti.
Under the plan, the city would loan as much as $75,000 to distressed borrowers, who would not have to make payments on that loan until they sold their home. The city money would go directly to lenders, which in turn would have to agree to reduce the mortgage balance to current market value -- in some cases a write-down of more than $100,000. The banks and the city would get a share of any appreciation in the home's value at the time of its sale.
The write-downs in principal are necessary in neighborhoods such as Pacoima, organizers say, because home values are now around half of what they were at the height of the housing boom, and some families bought properties with no money down using exotic loans.
"People were enticed and entrapped into financial products that they did not understand by people who . . . stood to benefit financially," said Stephanie Haffner, supervising attorney of the Housing and Consumer Advocacy Group for Neighborhood Legal Services.
Yvonne Mariajimenez, deputy director of Neighborhood Legal Services and a member of the community organizing group One LA, said it is only fair that communities such as Pacoima, which were "intentionally targeted with predatory loans," also benefit from relief programs.
But the program could be controversial because it gives government help to individual homeowners. And it is unclear whether banks would be willing to write down principal and take losses -- even seemingly smaller losses than they would wind up with if they foreclosed.
Bank of America spokeswoman Jumana Bauwens said many loans serviced by her bank are actually owned by third-party investors, who would have to be consulted on any modifications.
The homeowners who are hoping for help say they just want something that will keep them in their homes.
