Aid for homeowners urged

sacramento -- Lawmakers and lenders called on the state’s troubled home mortgage industry Tuesday to step up efforts to help financially strapped Californians avoid losing their homes to foreclosure.

But they stopped well short of endorsing calls from consumer groups for a moratorium on foreclosures -- now at a 20-year high.

“Legislative efforts to intervene in the market are not the answer,” said state Sen. Michael Machado (D-Linden), chairman of the Senate Banking, Finance and Insurance Committee. “They can cause befuddlement at best.”

Machado’s committee heard testimony from more than a dozen economists, lenders, consumer advocates and regulators about how California government should deal with a mortgage meltdown.

The crisis has led to a credit squeeze that already has forced thousands of people out of their homes and threatens to do the same for thousands of others.

One of the boldest ideas came from the policy director of the Berkeley-based Greenlining Institute, which urges companies to provide financial services to inner-city communities.

Bob Gnaizda proposed that the mortgage industry create a $10-billion fund to help people restructure their high-interest-rate loans into more manageable mortgages.

California ACORN, an Oakland group that works on economic justice issues for low- and middle-income communities, demanded even stronger action -- an immediate freeze of foreclosures by banks and other lenders for as long as a year and passage of a state law prohibiting sheriffs from auctioning foreclosed property for at least six months.

“California is on the verge of a crisis in homeownership due in great part to predatory lending,” said ACORN’s John Cranshaw at a morning news conference.

Entry-level mortgages with interest rates that start low and rise quickly were “designed to trap borrowers into high-cost loans they cannot afford,” he said.

Dorothy Hicks, an Oakland retiree who is fighting off a foreclosure, said she was struggling to meet a new monthly payment on a refinanced mortgage that jumped to $2,700 a month.

“My credit is now in the toilet because I’ve had trouble meeting the payments,” she said. “Unless I can figure out a way to get out of this mess, I’m going to lose a home I’ve lived in for almost 40 years.”

This is the third hearing this year led by Machado’s committee, aimed at figuring out what the state can do to keep people in their homes and to protect economically crucial jobs in the construction and real estate industries.

Machado is pushing two bills through the state Legislature that would make modest changes in how lenders offer low-interest, adjustable-rate mortgages to borrowers who can’t afford payments on traditional, fixed-rate loans.

One bill would put federal loan-affordability guidelines into state law, and the second would boost the number of state examiners responding to consumer complaints of unethical lending practices.

Both measures are expected to win final passage from the Legislature and be sent to the governor before lawmakers recess for the year Sept. 14.

“My bill addresses a problem that is out there,” Machado said. “It will put up a wall, so that it does not happen again.”

In the meantime, he urged state regulators to be more aggressive in cracking down on real estate brokers and lenders who may be knowingly putting people into homes that they can’t afford.

Officials of the administration of Gov. Arnold Schwarzenegger, meanwhile, are taking additional steps to help potential home buyers. The heads of various consumer agency departments said they were putting the finishing touches on regulations that would tighten lending practices. They said they also were conducting town hall meetings across the state to educate homeowners and prospective home buyers on how to sidestep mortgage mishaps.

Education and outreach are laudable but aren’t enough to stave off a crisis, said Alan Fisher, executive director of the California Reinvestment Coalition, a San Francisco group that works with urban community groups.

Fisher urged lenders to show more flexibility in restructuring expensive mortgages before they adjust upward to new monthly payments that can rise by as much as 40%.

He urged the state and the mortgage industry to create a fund to provide financial aid to strapped homeowners. Borrowers also need independent credit counseling and legal assistance in renegotiating loans, Fisher said.

Some of that flexibility and assistance is already widely available, said members of a panel of lenders and loan service company executives. However, they noted that too many lenders waited until it was time to foreclose before contacting borrowers.

Michaela Albon, the senior vice president and general counsel for home loans at Seattle-based Washington Mutual, said her company had earmarked $2 billion and hundreds of employees for a program to contact mortgage holders and restructure loans as much as six months before their interest rates were set to increase.

“We’re attempting to reach customers prior to the point they get in trouble with payments,” Albon said.

marc.lifsher@latimes.com