Governor's agreement with loan servicers could ease foreclosure pain

Governor Arnold Schwarzenegger announced Tuesday he has lined up four large loan servicers to help keep people with mortgage troubles in their homes.

The servicers are Countrywide Financial Corp., GMAC Financial Services, Litton Loan Servicing LP and HomeEq Servicing, which between them have more than 25 percent of the servicing market. Loan servicing is collecting mortgage payments.

"With this type of cooperation from loan servicers, we can save tens of thousands of people from being added to the foreclosure lists. This common-sense approach does not involve a government subsidy or bailout," Schwarzenegger said Tuesday in Fresno. "Borrowers need to do their part too. If these lenders are willing to meet more than halfway, it's important that consumers don't run when they reach out. It was a two-way street that got us into this mess and it will be a two-way street that gets us out."

The agreement the governor negotiated with lenders builds off a proposal by Sheila Bair, chairwoman of the Federal Deposit Insurance Corp. Blair is urging lending agencies to keep subprime mortgage borrowers at their initial interest rate as long as they are living in their home, making timely payments, but can't afford the loan.

One of the things driving people out of their homes is the re-sets in subprime mortgages, when low teaser payments convert to the actual cost of the loan. On some $400,000 mortgages, that can mean a jump in payments from $800 to $2,600 per month. The borrowers have to prove that they cannot afford the re-set payments.

Schwarzenegger is the first governor to ask servicers to commit to working with troubled borrowers.

He said the "growing foreclosure crisis in this country, and in particular here in California, is an issue that we all need to address. According to a survey just last week, seven of the 16 metropolitan areas with the highest foreclosure rates in the nation are right here in California."

That same survey showed that California had 51,259 foreclosure filings in September, the most of any state in the nation. And there are 500,000 more Californians with subprime loans that will jump to higher rates over the next two years, he said.

"Sad to say, many of them probably won't be able to make those higher mortgage payments and will lose their homes, will go into foreclosure, which is devastating to families. It hurts our neighborhoods and it depresses our economy. This is also part of the reason why our state revenues have decreased over the last few months."

He said his administration is lobbying Congress to raise the current limits for government-backed loans so more Californians qualify for traditional mortgages.

Schwarzenegger said mistakes were made by both sides, by lenders and borrowers, and this plan will "minimize the pain for everybody."

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