California has earned the unfortunate distinction of having the second highest foreclosure rate in the country. A study by RealtyTrac showed that in one month alone, one in every 226 households in California had a foreclosure filing--more than twice the national average. That's why I, along with my California colleagues, put forth a plan to address the needs of California homeowners ensnared in the foreclose crisis. It includes:
Refinance Fannie Mae and Freddie Mac Mortgages at Low Rates. The plan calls for Fannie Mae and Freddie Mac to allow their mortgages that meet basic criteria to refinance at a historically low market rate. This provision would allow homeowners to reduce their monthly mortgage payments by hundreds of dollars, which would go a long way in reducing the number of defaults and preventing foreclosures.
"Homeowner's Bill of Rights." The plan calls for a Homeowners' Bill of Rights to apply to all federal housing programs that will:
* Make the process homeowner-friendly: Ensure a single point of contact; require servicers to review documents within a timely fashion and disclose information; and ban "advanced fees."
* Eliminate needless obstacles to effective modifications: Allow for flexibility in the debt to income ratio; end the requirement that homeowners be delinquent in order to be eligible for a loan modification; end dual tracking; and require that servicers not report adverse credit information while a trial or permanent modification is underway;
* Ensure accountability and establish an appeals process: Create an Office of Consumer Advocate; conduct random audits of modifications; and establish an independent appeals process for homeowners who believe their modification has been improperly rejected or handled in violation of program rules.
Temporary Reductions in Interest Rates for Those in Bankruptcy Proceedings. Homeowners who file for Chapter 13 bankruptcy would see a temporary reduction in their interest rate. This would mean the full amount of a homeowner's monthly payments would be directed to paying down their principal balances for five years. Coordination with the bankruptcy process would make these reductions more likely to succeed than other types of loan modifications while also limiting the program to those who truly need it.