California Offers Mortgage Relief for Underwater Homeowners

By Seth Sandronsky

John Shaban, 43, of Fair Oaks near Sacramento is a homeowner with an underwater 2005 mortgage. Bank of America owns this $330,000 loan, originally with Countrywide Financial, on a house now valued at $160,000.

“I began on Nov. 11, 2011, to contact the Bank of America about modifying the principal and interest rate on my loan,” he said. From last November through June 7, Shaban alleges that he spoke with multiple Bank of America representatives in a bid to modify the family’s mortgage.

Provisions in the California Homeowner Bill of Rights that Gov. Jerry Brown (D) signed into law on July 11 provide more protection for households facing foreclosure. “It’s about time that above the California citizens be treated with deference above the big banks,” Shaban said.

One provision in this law mandates that lenders must create for borrowers “a single point of contact for homeowners who are negotiating a loan modification.” Shaban alleges that in vying for a mortgage modification he spoke with many Bank of America representatives.

Asked for a comment on Shaban’s case, the Bank of America replied in a statement.

“Based on the financial information previously provided by the Shabans, they were not qualified for a Home Affordable Modification under the government’s affordability guidelines. We understand their financial situation has changed recently, which will allow us to reconsider them for the government program.

“A home retention specialist has been in contact with them to request updated documentation, as required by the federal program guidelines. Once the documentation is received, we will review their file again.”

Shaban, a painter with the Service Employees International Union Local 1021, lost his nine-year job with the Sacramento City Unified School District on July 1. He landed a temporary job as a political organizer with SEIU Local 1021 in mid-July.

Further, Shaban plans to re-submit mortgage modification papers with Bank of America. “Bank of America is either going to take my house and all of the equity in it, which isn’t much,” Shaban said, “or allow me to modify my mortgage.”

There are about two million underwater mortgages in California, according to the annual State of the Nation’s Housing report released June 14 by Harvard University’s Joint Center for Housing Studies.

Kathy Fox is a Sacramento broker associate with Prudential NorCal Realty. Asked for a comment on Shaban’s upside-down mortgage in light of the Homeowner Bill of Rights and it possible impacts on the real estate market in Fair Oaks, the Sacramento region and statewide, she said that a low level of housing inventory for sale now works in the favor of people holding underwater mortgages.

This supply-and-demand dynamic “will put pressure on house prices to go up,” Fox said. “and help underwater homeowners. Most Sacramento region homes for sale, if they’re in good condition and reasonably priced will get multiple offers in a short period of time.”

In a statement on the Homeowner Bill of Rights, the California Association of Realtors said it “opposed this well-intentioned legislation because it will encourage the filing of lawsuits intended for delay and further discourage lending.”

Last decade’s home-price crash rocked homeowners in Fair Oaks, the Sacramento region and statewide. According to data from the Center for Responsible Lending, there have been 581,000 completed foreclosures of Golden State households, or 9.3% of all mortgage loans originated between 2004 and 2008. Meanwhile, another 549,000 California households, or 8.9% of the total, are at-risk of foreclosure now.

Sanjay Varshney is dean of the College of Business Administration at Sacramento State. According to him, a “boom-and-bust” real estate cycle has propelled a two-fold process. On one hand there is a fall in personal incomes with falling home prices that weakens consumer buying power. On the other, underwater mortgage holders are walking away from their homes, as California makes it easier for people to leave their distressed homes than do some other states.

State Attorney General Kamala D. Harris, a Democrat, introduced the Homeowner Bill of Rights. Its proponents included the Alliance of Californians for Community Empowerment, Courage Campaign, Consumers Union, Center for Responsible Lending, National Council of La Raza and Occupy Wall Street activists.

In a statement on the Homeowner Bill of Rights, the California Association of Realtors said it “opposed this well-intentioned legislation because it will encourage the filing of lawsuits intended for delay and further discourage lending.”

The Homeowners Bill of Rights provides homeowners in the Golden State with access to courts by strengthening provisions in the $25 billion national mortgage settlement that 49 state attorney generals reached with the five biggest banks that service borrowers’ mortgages. The group of five banks is: Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.

Under the national mortgage settlement, Bank of America agreed to pay $8.6 billion to eligible California homeowners facing foreclosure. Asked for documentation on the financial relief provided to eligible homeowners since this settlement with federal and state authorities, Bank of America declined to reply.

Attorney General Harris this March named a California monitor, Professor Katherine Porter of UC Irvine, to oversee the performance of mortgage servicers in the Golden State. “Prof. Porter’s first report is due in about a month, and then we will have the first statistical report on how they are performing,” said Shum Preston, a spokesman for AG Harris.

The Homeowner Bill of Rights takes effect on Jan. 1, 2013.

Seth Sandronsky lives and writes in Sacramento, Calif. Email

From The Progressive Populist, September 1, 2012

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