Daily News
By Rick Orlov and Tony Castro
May 14, 2009
Desperate homeowners in the northeast San Fernando Valley got a potential reprieve on foreclosures Wednesday when the Los Angeles City Council unanimously approved a $1 million program it hopes will lead banks to lower mortgages to current market values.
The pilot program would make loans of up to $75,000 available to homeowners from the Community Redevelopment Agency as "silent second mortgages" that supporters hope would encourage financial institutions to modify home loans.
But the measure is not legally binding on lending institutions, and some homeowners in Pacoima acknowledged that it hinges on lenders who they said have been reluctant to help them out so far.
"The bank hasn't wanted to reduce the loan principal, which would make our mortgage affordable and sustainable, and our only hope is that this might now make (bank officials) change their minds," said Jose Hernandez, whose mother, Rosa, faces foreclosure on the $488,000 home she bought in Arleta five years ago.
Councilman Richard Alarcon, who represents the Northeast Valley and authored the measure, said the federal government needs to pressure banks to readjust their loans to current market values - a step that would reduce loan payments and allow people to remain in their homes.
"The problem now is many of these loans are among different lenders and it's hard to get them to agree to this," Alarcon said. "(But) it was the banks that created this problem and they need to do something to solve it."
Saving homes
Officials from OneWest Bank - formerly IndyMac Bank - which was responsible for many of the mortgages that troubled homeowners like Rosa Hernandez now are trying to renegotiate, did not immediately return calls seeking comment.
Neither did officials for Bank of America, which now owns Countrywide Bank, another of the lenders handling many of the troubled housing loans.
Yvonne Mariajimenez, deputy director of Neighborhood Legal Services and a member of One LA, the community organizing group that developed the pilot program, said her organization is in discussions with a handful of major banks that she hopes will lead to positive action.
"They want to make sure their investors come out ahead," Mariajimenez said. "Our studies show that their investors would do better under our plan than taking the homes through foreclosure."
One LA officials also said they see the pilot program as a blueprint for a plan that could be made workable on a wide scale and save hundreds, if not thousands, of homes in Southern California.
"This is something that would give hardworking families in my community and beyond a chance to save their homes that took a lot of sacrifice for them to buy a home in first place," said the Rev. John Lasseigne, pastor of Mary Immaculate Church in Pacoima, one of the housing advocates who attended Wednesday's council meeting.
The council authorized the CRA to launch the $1 million program in the next few months. According to Alarcon, the CRA is expected to approve the million-dollar expenditure some time in June.
Alarcon said he believes the pilot program could eventually serve as a national model.
Reworking mortgages
Under the plan, the CRA would lend as much as $75,000 to troubled homeowners, who would not have to make payments on that city loan until they sold their home.
The city loan money would be paid directly to lenders, who would have to agree to reduce the principal of the loan to the homeowner to the current market value.
That write-down, said officials, could be as much as $100,000.
In turn, the city and the lenders would get a fair share of any appreciation in the home's value at the time of its sale.
Hernandez, for instance, was approved for a $388,000 loan on her Arleta home when she likely should not have qualified, according to her son.
"My mom was told she qualified even though she only made $10 an hour," said Jose Hernandez, a teacher at Arleta High School.
Hernandez said his mother's original monthly mortgage payment was $2,100 which later increased to $2,300 a month before jumping to $4,000 in December, by which time she was retired and could no longer make the monthly payments.
Jose Hernandez said that he, his sister and father - who have a combined monthly income of $6,000 - have tried to refinance the loan themselves under their names but have been unsuccessful.
"We're willing to negotiate taking over the loan," said Hernandez. "But the bank won't budge."