From: Trost, Alicia [Alicia.Trost@SEN.CA.GOV]
Sent: Friday, January 16, 2009 3:31 PM
Subject: Legislative Leaders Urge Prospective Obama Administration for Consumer Protections on Foreclosures


FOR IMMEDIATE RELEASE                                                                  Contact: Alicia Trost 

January 16, 2009                                                                                                        916-651-4188




Legislative Leaders Urge Prospective Obama Administration for Consumer Protections on Foreclosures



(SACRAMENTO) – Senate President pro Tem Darrell Steinberg (D-Sacramento), Assembly Speaker Karen Bass (D-Los Angeles) and legislative leaders on the mortgage issue sent the following letter to banking officials in the prospective Obama administration. The letter (see below) asks the federal government to take the following actions to assist homeowners at risk of foreclosure:







January 16, 2009


Lawrence Summers                                                      Tim Geithner

Director-designate                                                        Treasury Secretary-designate

National Economic Council                                           Department of the Treasury

1600 Pennsylvania Avenue, NW                                   1500 Pennsylvania Avenue, NW

Washington, D.C. 20500                                              Washington, D.C. 20220


Dear Messrs. Summers and Geithner:


The purpose of this letter is to bring to your attention these specific requests regarding home foreclosure.  First, that you work swiftly and thoughtfully with Congress to use Troubled Asset Relief Program (TARP) funds to reduce the number of foreclosures and leverage aggressive loan modification programs.  Second, that you support comprehensive bankruptcy reform to give judges the discretion they need to modify first mortgages.  Finally, that you support states in their efforts to enact strong consumer protection laws that apply to both state and federally chartered financial institutions.


California holds the distinction of having the greatest number of home foreclosures in the country.  The state’s foreclosure activity was up 51 percent from November 2007 to November 2008, and one in every 218 housing units received a foreclosure filing during the month.  This is more than twice the national average.


While the prospect of an individual family losing its home is daunting, the impact goes well beyond that family.  Neighborhoods experience declining home values, as well as increased blight and crime.  Local and state governments lose significant tax revenue while their budget operating costs rise.  And, general consumer confidence wanes, negatively affecting nearly all aspects of government.  Like many other state and local governments, California is in crisis, and the faltering housing market only exacerbates our problems.


To address the housing crisis, the Federal Deposit Insurance Corporation (FDIC) recently proposed an aggressive loan modification program based on its experiences working with troubled borrowers whose loans were held by IndyMac Bank.  Additionally, some financial institutions recently implemented voluntary programs, while another has entered into settlement agreements with state attorneys general.  These efforts are steps in the right direction, but are simply not enough.  Voluntary and institution-by-institution approaches will not create the systematic change that is now necessary.  We urge the new administration to provide the leadership to implement programs and policies to help families stay in their homes.


TARP and Foreclosure Prevention

The TARP proposal, which infuses hundreds of billions of dollars directly into the banking sector, should also include a provision that mitigates the astronomical rise in the number of home foreclosures.  The approach to date has placed emphasis on infusing liquidity in the market – a “top-down” approach that seeks to get money flowing between banks, which in turn are intended to increase lending to businesses and individuals.  While this action is important, we also need a “bottom-up” approach, focusing on the individual homeowner.


Therefore, as proposed in H.R. 384, the TARP Reform and Accountability Act of 2009, some of the remaining, unspent TARP money should be dedicated directly to the modification of home loans that are at risk of foreclosure.  Financial institutions that receive TARP funds should be required to offer and be accountable for offering sustainable loan modifications.  Requiring sustainable home loan modifications for borrowers willing and able to pay their revised mortgage payments will not only help the homeowners who receive this assistance, but also positively impact the values of financial institutions’ home loan portfolios.


Bankruptcy Reform

Allowing a judge to modify a borrower’s first mortgage in bankruptcy provides a critical backstop to protect homeowners whose lenders cannot or will not agree to voluntarily modify their loans.  Bankruptcy courts can modify loans of other secured debt such as vacation homes, why not a borrower’s primary residence?


States’ Rights and Preemption

While states have the right to regulate the foreclosure process, they are limited in their ability to mandate aggressive home loan modifications by federally chartered financial institutions.  California has run into many roadblocks in recent years in terms of enacting strong consumer protections in the area of credit and finance.  Several of our laws have been found by the courts to be preempted.  In other instances, good public policy proposals did not move forward because of concerns of federal preemption; or if enacted, they only apply to state chartered banks and credit unions.  As a result, many state banks abandoned their state charters to seek regulation by one of the five federal banking regulators.

Ironically, the adoption of some of these proposals might have stemmed some of the massive home mortgage loan problems that we face now in California.  Therefore, we think it is time to revisit federal preemption in regard to federally chartered financial institutions.  States must be given the ability to adopt strong consumer protections that apply to all consumer credit transactions – regardless of the type of charter held by the financial institution.  After all, state governments better understand the problems that are unique to their states and regions.


In California work has begun in earnest to do what we can to stabilize the housing market; we adopted foreclosure process legislation last year and will continue this discussion this year.  Members of the state legislature are considering legislation to modify the foreclosure process to provide additional time for borrowers to work out loan modifications.  We will consider this legislation this month.


These efforts at the state level are a very small part of the work that needs to be done to help struggling homeowners.  The federal government must now step in where states are unable by adopting bankruptcy reform and an aggressive and systematic home loan modification program that gives homeowners a fighting chance to avoid foreclosure.  Finally, states must be given the ability to enact laws to avoid this and other similar crises in the future.







DARRELL STEINBERG                                             KAREN BASS

President Pro Tempore                                     Speaker

California State Senate                                      California State Assembly





RON CALDERON                                                     TED LIEU

Chair, Senate Banking, Finance & Insurance                 Chair, Assembly Rules Committee






ELLEN CORBETT                                                      PEDRO NAVA

Chair, Senate Judiciary Committee                                Chair, Assembly Banking & Finance





cc:  Senator Diane Feinstein

       Senator Barbara Boxer

       Congresswoman Jackie Speier