Schwarzenegger Mortgage Assistance Doesn’t Do Enough

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The California Association of Realtors applauds Gov. Arnold Schwarzenegger’s plan to assist Californians struggling to hang onto their homes. The governor has reached an agreement with many loan servicers to streamline the loan modification process for subprime borrowers living in their homes. He’s also launched a $1.2 million public awareness campaign to help educate distressed homeowners about their options.

Unfortunately, these efforts don’t go far enough to solve one of the most fundamental problems bedeviling the real estate finance system.

A key problem is that the federal government insists on a conforming loan limit of $417,000. That’s the maximum loan amount that government-sponsored enterprises Fannie Mae and Freddie Mac may purchase or guarantee on the secondary market.

As the Business Journal is reporting in this issue, the median price of a home in Los Angeles County was $510,000 in December. Although the median price in Los Angeles has declined, even at today’s prices, Californians are forced into more expensive non-conforming jumbo loans.

That puts homeownership out of reach for many families. California’s homeownership rate consistently has been 10 percent lower than the rest of the nation’s for more than 20 years.


Missed opportunity

In November, the Office of Federal Housing Enterprise Oversight missed an opportunity to address this issue, opting not to change the conforming loan limit for 2008. Regional adjustments for high-cost areas such as Los Angeles, Orange County and the Silicon Valley could have helped make housing more accessible and expanded access to FHA and VA mortgages.

The Realtors association will continue to call attention to this problem and push for reform. In the meantime, we’re sponsoring AB 1356, which will make it possible for Realtors to help homeowners who are already in default to sell their home and salvage their equity prior to foreclosure. AB 1356 would allow a real estate agent to bring the homeowner an offer from an “equity purchaser” (an investor who will not personally occupy the property). Current law requires agents representing equity purchasers to demonstrate financial responsibility by purchasing a bond. Unfortunately, the required bond is not available for purchase, which prevents the homeowner from receiving legitimate offers. AB 1356 would allow agents to purchase professional liability insurance as an alternative, enabling homeowners to sell the property on the open market and avoid foreclosure.

The Realtors association also will sponsor legislation this year to increase the quality of regulation of mortgage loan originators, especially those who work under authority of the Department of Real Estate.

Our proposal will help homeowners

determine whether a sales agent also is the loan agent, and flag important supervision issues.

But the federal government still must recognize that its loan limit is unfair. Had buyers been able to qualify for 30-year-fixed conforming loans, they wouldn’t have had to shop around for subprime loans. That might have helped many distressed homeowners avoid the trouble they’re in now.


William E. Brown is president of the California Association of Realtors, which is based in Los Angeles.

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