Assemblyman Ted Lieu wants lenders to freeze interest rates for homeowners who took out subprime loans. Lieu is also calling for more funding for loan counselors to help homeowners facing foreclosure. As many as a half million homeowners may face foreclosure in the next couple of years.
Julie Small: The conventional thinking is that subprime loans only went to bad credit borrowers, because subprimes were the only loans they could get. It turns out that's not true. Assemblyman Ted Lieu says some brokers pushed borrowers with good credit into the subprime market.
Assemblyman Ted Lieu: There were incentives, actually money, given to brokers to put someone in a higher interest rate loan when they otherwise would have qualified for a lower interest rate loan. So you have folks who are in subprime loans that could have been in prime loans.
Small: The Democrat from Torrance isn't the only one making that claim. The Federal Reserve Bank of Boston says more than half of the nation's subprime borrowers could have gotten better deals. Now they're stuck with loans that are due to bounce up to a higher interest rate. Assemblyman Lieu, who chairs the Banking and Finance Committee, is pushing California lenders to permanently freeze those subprime interest rates. He's also proposed more funding for loan counselors to help save some homeowners from foreclosure.
Martha Lucey: There's been very limited funding for default and foreclosure counseling.
Small: Martha Lucey does that kind of counseling. She's with a statewide credit counseling firm, By Design Financial Solutions. Lucey says federal housing money funds her not-for-profit debt counseling services.
Lucey: But that funding is nowhere near enough to handle all of the homeowners who are calling us today.
Small: And a lot more people should be calling. Greenlining, a loan industry watchdog group, reports that half of the California homeowners in foreclosure didn't call their lender or a debt counselor. Again, Martha Lucey.
Lucey: They can meet with a counselor one-on-one for a session to review their loan documents to talk about their income and expense, and try to figure out what's going on with their family budget, and how does the mortgage payment fit into that, and if there is an affordability for mortgage payment, we can act as advocate with the lenders, calling and helping the homeowner navigate the process to see if there's some loan modification available to them.
Small: That could keep some people in their homes and out of foreclosure. California could sure use the help. This past summer, nearly 150,000 homeowners statewide were hit with foreclosure notices.