California Loans News

Attorney General Edmund “Jerry” G. Brown Jr. called on the attention of several banks and loan servicers to detail their plans regarding assistance of troubled homeowners. This move is to possibly avert the “new wave” of foreclosures vis-à-vis the massive monthly payment increases made on Pay Option Adjustable Rate Mortgages (ARMs).

Brown said, “Homeowners with Pay Option ARMS are sitting on ticking time bombs that the lending industry has the power to defuse. Unless these banks and loan servicers act quickly, hundreds of thousands of mortgages will reset across the state, creating a new wave of foreclosures.”

During the third quarter assessment this year for the California real estate market trend, the state has already accounted for more than 25 percent of the whole country’s foreclosure activity. There are estimated 250,000 homes that have received foreclosure notices and filings in the Golden State. This also accounts for a yearly increase of more or less 20 percent in the said real estate activity.

Homeowners in the state comprise almost 60 percent of the country’s unusual Pay Option ARMs that have originated between the years 2004 and 2008. Almost one million of these mortgages would be reset in the whole nation for the next four years. This would then lead to higher payments and immense boost in the number of foreclosed properties.

Brown believes that through the lending agencies’ initiatives to be responsive to homeowners and loan modification programs that the problems could be addressed. He also asserted that the programs should be expanded and the assistance extended further. In light of this action, he asked 10 lending companies to submit their plans for this call by November 23. The lending institutions referred to are Bank of America Home Loans & Insurance, Well Fargo & Company, JP Morgan Chase & Co., Goldman Sachs’ Litton Loan Servicing, GMAC’s ResCap, LLC, Ocwen Financial Corporation, OneWest Bank (formerly known as IndyMac Federal Bank), American Home Mortgage Servicing, Saxon Mortgage Services, Inc. and Select Portfolio Servicing.

Brown’s request letter includes the following key details to be provided by the lenders:
1.    The number of option ARM loans secured by residential real property located in California that you are servicing (regardless of whether you own the loans).
2.    Of the number of Pay Option ARM loans identified above, the number that have negatively amortized, and the average dollar amount of that negative amortization.
3.    A detailed explanation of all efforts you have taken to handle customer service concerns of borrowers with Pay Option ARM loans, including any increased staffing and a description of any notices you send or are planning to send to borrowers whose loans are about to reset. For advance notices sent to borrowers, please specify how far in advance of the reset date you send, or plan to send, those notices.
4.    A detailed explanation of the loan modification plans you have developed for Pay Option ARM loans. Please state the circumstances under which your plans allow for the reduction of principal, and the possible amounts of principal reduction. If you are not willing to consider principal reduction as part of your plan, please explain why. Please also specify whether you have already implemented your modification plans for Pay Option ARMs or, of not, the time frame within which you expect to do so.
5.    To the extent your approach for considering whether and how to modify Pay Option ARM loans has changed since the beginning of the foreclosure crisis, please explain the changes and the reasons for those changes.

This letter was issued by deputy attorney general Benjamin Diehl. It also stated, “We look forward to receiving the requested information and to productive discussions on how to minimize the impact of Pay Option ARM recasts on California’s residents and economy.”

Meanwhile, Brown has made sure that measures to protect homeowners against loan modification fraud in the state are realized. Last year in October, there have a settlement worth $8.68 billion with Countrywide Home Loans. This occurred due to the investigation revealing that the said company has “deceived borrowers by misinterpreting loan terms, loan payment increases, and borrowers’ ability to afford loans.” Furthermore, there have court orders to shut down more than 30 fraudulent foreclosure assistance companies.

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