A report issued Wednesday by the California Reinvestment Coalition says lenders are doing too little too late to help distressed borrowers avoid foreclosure.
“The backdrop for all of this is the predatory lending practices of the last few years,” said Kevin Stein, associate director of the San Francisco-based coalition. “Too many borrowers in California were victimized by bad lending practices, and today... loan servicers are not working with them to keep them in their homes.”
In the survey of 42 nonprofit loan counseling and legal services offices statewide, 90 percent of those polled said it was “very common” for their clients to have received adjustable-rate loans they couldn't afford.
Many borrowers lacked the income to avoid foreclosures once low, introductory interest rates expired, Stein said. Weak underwriting practices enabled lenders to continue issuing home loans after housing prices had risen well beyond the economic reach of middle-wage earners.
Today loan servicers “continue to turn to foreclosure as their most common response to borrowers in distress,” the report said. Foreclosures in San Diego County hit a record 1,556 properties in May, while lenders started foreclosure proceedings by issuing notices of default on 3,139 dwellings.
Sixty-eight percent of those who took the April coalition survey said foreclosures are a very common outcome for their clients. Only 9 agencies, less than a fourth of those responding, said loan modifications were a “very common” outcome.
Only 30 percent of those surveyed said the lending industry as a whole was conducting outreach to borrowers before their rates adjust upward.
The report said HOPE NOW, the lending industry's national outreach program for troubled borrowers, hasn't come close to meeting the need for loan modifications.
Representatives of the lending industry were unavailable for comment on the survey. Loan servicers have maintained that it's often difficult to modify loans that have been bundled into securities and sold on Wall Street, as many adjustable loans were. Sometimes investors prefer to foreclose on delinquent loans than write down debt.
The report contained several recommendations. In part, it called on lenders to help distressed borrowers by reducing interest rates, converting adjustable-rate loans to fixed-rate loans, and writing down debt.
Emmet Pierce: (619) 293-1372;
emmet.pierce@uniontrib.com
