California Mortgage Workouts

The California Reinvestment Coalition completed its third survey on mortgage loan workouts titled: “The Continuing Chasm Between Words and Deeds III”.  Forty-two mortgage counseling agencies acting as liaison between the homeowner and the lender’s loss mitigation department were interviewed and the results were dismal overall.  The following excerpt is from page five of the report on “the circumstances that led clients to their offices”:

The vast majority of loans should not have been made.  A shocking 90% of respondents reported it was “very common” for their clients to have received loans that were unaffordable to them at the time the loan was made.

Family incomes are not keeping pace with mortgage payments.  Nearly three quarters of responding agencies said that change in family income was a very common scenario for their clients.

Industry fraud and abuse of immigrants are substantial concerns.  Nearly 60% of responding groups reported that non-English speakers were sold loans in their native language, but provided English-only documents.  This is a recipe for abuse, and flies in the face of California state law requiring translation of certain documents in certain transactions.  Relatedly, 55% of groups responding cited lender/broker abuse as a very common problem.

Countrywide Financial as bad example.  California Attorney General Jerry Brown recently sued California’s largest lender, Countrywide Financial (“Countrywide”), alleging a broad scheme of deception in selling risky, costly, and complex loans to borrowers, whether or not those loans were appropriate for the borrower, thereby placing California borrowers at greater risk of foreclosure.