Gov. Schwarzenegger Works with Lenders to Help Homeowners Avoid Foreclosure

GOVERNOR: First of all, I want to say thank you very much to our Assembly Republican Leader, Mike Villines, for being here today. Where is Mike? Right here. And then Mayor Alan Autry, a very good friend. And I want to thank also Preston DuFauchard, who was our great negotiator, and he's with the California Department of Corporations. And then Mike Grimminger -- instead of Grimminger, Grimminger -- from the FDIC, I want to thank you also for being here, and everyone else that is here today.

I have, as you know, come many times here to the Central Valley, to the San Joaquin Valley. I am here today to talk to the members of our Partnership of the San Joaquin Valley and also to the leaders of the Central Valley, to talk about a very serious issue that is hurting California families and is hurting our California economy. 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, 7 of the 16 metropolitan areas with the highest foreclosure rates in the nation are right here in California, and I'm talking about cities like Oakland, San Diego, Sacramento, Bakersfield, Riverside, San Bernardino, Stockton, and of course also Fresno.

And that same survey says that California had 51,259 foreclosure filings in September, this last month, which is the most of any state in the nation. And by the way, there are another half a million Californians that have sub-prime loans that will jump to higher rates and that will happen within the next two years. So, 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.

And behind each statistic, of course, are families who believed that they had achieved the American Dream. Think about this for a minute. Two days from now we are celebrating Thanksgiving. It's a time when we all gather in our homes and we are hanging there with our friends and with family, and we share a meal and we give thanks, and we build memories that last a lifetime. But there are many families out there that will not be able to celebrate because of the situation today and because of this major problem.

So to lose your home, as probably everyone knows, to a foreclosure, is an emotional crash and it sometimes takes years to recuperate from. But we don't have to sit idly by to watch the American Dream become the American Nightmare. We are lobbying Congress to raise the current limits for government-backed loans so that more Californians can qualify for traditional lower-risk mortgages. We have also had conversations with our legislative leaders, and we all have committed that we will do everything possible to make sure that we protect the consumer. And because of the cooperation that we have gotten from the loan services that are, some of them, with us here today -- and we want to thank them for their great cooperation and for their willingness to work with us -- we can save tens of thousands of people from being added to that foreclosure list. This approach does not involve government subsidies nor government bailouts. It involves common sense, pragmatism, and doing the right thing.

Mistakes have been made by both sides, by lenders and by borrowers, but this will minimize the pain for everybody. Normally the payment for many sub-prime loans would spike up, and the rates were supposed to go and adjust. But the lenders have agreed to keep mortgages at their initial low rate for a sustainable period of time for people living in their homes and making timely payments, but who lenders determine will default when their rates go up. So this is a very, very big victory for the people of California, because when they see their rates go up they are going to get help from those lenders. These loan services represent 25 percent of the market, and will then inspire other lenders to be part of this whole thing. We will be working with other lenders to urge them to be part of this new approach. Because so many of the people are caught in this crisis, I agree with FDIC Chairwoman Sheila Bair, who said that we have to put all of this on a fast-track approach in order to restructure those loans.

So, I'm also urging California lenders to streamline the process that they use to determine if their borrowers will default when their mortgage rates jump. Borrowers need to do their part of course, too; this is a two-way street, borrowers need to go and reach out as well. I think that when the lenders get in touch with them and they're willing to go halfway, I think the borrowers need to also do their part and not run the other way, which happens so many times. As I said, it's a two-way street that they got into this mess, and I think now we need a two-way street to get out of this mess. But in the meantime, by working together we can protect the American Dream and our American economy without hurting the American taxpayer.

So thank you very much. And now I would like to have Mike Villines come up and say a few words please.

ASSEMBLYMAN VILLINES: Thanks, Governor, I appreciate it. You know, I'm here today to commend the Governor. His leadership, as he was a leader in the fires, shows Californians, and reaffirms to Californians, that he cares and the State cares about the crisis that we're involved in. And you know, the sub-prime issue has become an international issue, and I believe Governor Schwarzenegger is the first governor to jump out in front and say there's a way to help California's hard working people. But he's coming to our district, he's coming to Fresno to make this announcement because he knows the Valley is particularly hard hit by this issue. We heard earlier from a supervisor in Kern County that down in the southern part of the Valley they're the worst hit.

This is something we all share, and a home is the American Dream. Not only is it how many of us, frankly, and many will build wealth in this society, but it's that place the Governor talked about, where you sit around the table and you build memories. Whoever we can keep in a home, we're all better off. And to see the lenders, the corporations, willing to come to the table and find a way to be helpful, speaks volumes of their commitment to not just making a better society and help hard working people, but to see the return on their investment, and it makes sense to keep somebody in.

So, I'm just here to say that I'm proud to be a part of the announcement that the Governor is making. I think this is a real issue, that we have to acknowledge that hard working people are having a hard time making ends meet, and the more that we can help them in this tough time the better we all are. And I think this is a team effort, and we're going to have to work hard. We know that the largest percentage of these loans comes to California. In the next 12 to 18 months they're all going to be reset, and the more people we can drive to work with their lender, and not run away from that, the better off we will be. And it takes real leadership to do it, and I think Governor Schwarzenegger deserves a lot of credit for that.

So Governor, I just want to commend you once again, and introduce my good friend Alan Autry to come up.

MAYOR AUTRY: Thank you, Mike. And I've got to echo Mike's sentiments towards the Governor. The Governor made some promises during his campaign, and he's kept every single one of them. The three that come to mind to me:

1. He said he was going to be the Governor for all of Californians.

2. He said he was not going to leave San Joaquin Valley behind.

3. Said he was going to be a governor of action.

And he's proceeded to do all three. I've lost count of the times he's been here.

And on this particular issue -- we talk about a home. We won't get into -- we all have our stories about our first home and all that, but it's very near and dear to me. And whether you lose a home via a fire or a foreclosure, it's devastating. And first and foremost, I know the Governor's heart; he doesn't want to see people lose their homes, pure and simple.

But there's also another factor here; the interdependency of this issue with the quality of life that we enjoy in California is very clear. For example, one, public safety. We're facing a public safety crisis right now. These homes continue to go into foreclosure, we lose the tax dollars. That's just business, the business of preserving our quality of life, which should be, and I believe is, of great interest to every Californian, certainly is to every Fresnan. And to draw the line between this thing, allowing it to careen and continue to go out of control, and end unaddressed in the devastation that it will cause, will equate into police and fire being laid off. The way the structure is right now, it just will. And this is the most frugal cities we're talking about, and frugal counties; not the ones that are out willy-nilly spending. Not too many of those out there, to be quite frank with you. So there are other issues, negative dominoes here, that are just huge in their magnitude.

So Governor, I want to thank you for addressing this, and I would like to call on -- again, we have a Governor -- and this is no slam at the Bush Administration, I support the Bush Administration -- but once again we have a governor leading the way on what should be an aggressive federal action as well.

He also said something very telling in his Inaugural Speech. He said this state was going to require some heavy lifting on many, many issues, and he can't lift it alone. He needs everybody. That's why he's here, he understands that. He's got 25 percent of the institutions on board on this. That's dramatic. So I would urge everyone to call their representatives at the state and federal level, talk to any business owner that they have, to call the banks, to work on an outreach with the non-profits, the social service centers, to reach out and get this information to the people so we can minimize the impact of this very, very challenging issue. Thank you again, Governor, for your leadership on this.

I'm sorry -- oh, you're going to make me pronounce it? Now I'd like to introduce Michael Grimminger.

MR. GRIMMINGER: Well, thank you very much. Lots of fun with my name today. Thank you very much, Governor Schwarzenegger, for inviting me to represent the FDIC at this important announcement today. On behalf of FDIC Chairman Sheila Bair I thank you for your bold leadership in calling for specific practical steps to deal with some of the issues that have been holding back the acceleration and streamlining of solutions for hundreds of thousands of Californians and Americans. I think today certainly your leadership is needed, because many sub-prime borrowers simply will not be able to make the reset payments when they go up by 30 percent or more. Working with the industry we can prevent this, but action such as yours is needed now.

Today you and Chairman Bair have joined to call on servicers and lenders for sub-prime loans to proactively reach out to borrowers, and where they can identify a borrower who is in the home but is not going to be able to make the reset payment, but has been making payments at the starter rate, to quickly streamline them into a mortgage obligation at the starter rate for a sustained, long-term period. We think that it's critical both for California and also for America.

Most importantly, today Governor Schwarzenegger's leadership is shown in being able to identify and reach out to the industry itself, and reach agreement with the industry to take these specific steps for their mortgage portfolios. I think this will have a tremendous impact upon California borrowers, and we think also for borrowers across the country.

So once again, thank you very much for your leadership on this issue, and thank you. And next I would turn the microphone over to Darcy Mayer.

MS. MAYER: Well, good afternoon, and thank you for inviting me to participate in this very important announcement. And we wanted to, on behalf of the servicers, thank the Governor for reaching out to the servicers and partnering with them to come up with good solutions for the homeowners and for all parties that are involved, because we totally agree that it is in no one's interest for there to be foreclosures.

One of the things that we'd like to ask the press to help get the word out is in encouraging borrowers to contact their servicers. The most important thing that we can do in helping them is to make that initial contact and to make it early. Once the borrowers contact the servicers, we also have a number of options that we can help them with, depending on their situation. We have invested in the people, the processes and the technology, and we really want to help the borrowers. So I think this is a great initiative that's started here, and we really hope to be able to help a lot of families out.

Thank you. And I'd like to next introduce Martha Lucey.

MS. LUCEY: Thank you very much. It's been our pleasure at By Design to host this event today. And I'd like to thank the Governor for inviting us to host this, as we are a housing counseling agency and we are seeing homeowners every day facing foreclosure. It's a sad fact. People talk in large terms about the foreclosure problems, but looking a homeowner straight in the eye and telling them there are no other options for them is the most difficult part of our job. With the approach that the Governor has laid out in support of Sheila Bair's initiative at the federal level, we're going to help homeowners. The home is the largest asset for most families in the United states, and keeping them in their homes is good for the families, it's good for the community, it's good for the nation overall. And so I commend the Governor for taking the initiative to step out of a comfort zone, to go out and work with the lenders to come up with workable solutions to help homeowners maintain home ownership. And for that I'm very thankful.

One other thing that I'd like to mention is homeowners aren't coming out and talking with their lenders, and they're not talking with housing counseling agencies. 50 percent of the time homes are foreclosed upon without the homeowner ever calling their lender. We need to work collaboratively, and the Governor has laid out a framework for doing just that through a series of PSAs. And we're talking about other collaborations to make sure the word gets out there in a way that people pick up the phone. There are a few options available to them today; one is through the Hope Hotline, which is 1-888-995-HOPE. A second option is to call By Design at 800-750-2227. There are options available today for homeowners to talk with a live person about the problem that they're facing, and if they're not ready to talk to their lender, we encourage them to call a local housing counseling agency.

And with that, I understand that we are going to open up for questions.

GOVERNOR: Thank you very much. And I want to thank again By Design for having us here and doing such an extraordinary job, giving people such good advice about financial problems that they have. And I think this is -- you have been doing this for a long time, so we want to thank you very much.

If you have any questions, please feel free. Yes?

Q: Governor, one of the caveats of this whole foreclosure problem is the fraud issue, and the language barrier that many of these sub-prime borrowers are getting into with many of these mortgage lenders. So you're talking about the state legislation and the federal legislation. How are you going to deal with the fraud issue that is coming out of this, where a lot of these people are saying, "You know what? I got this mortgage, but I didn't understand what I was signing," and now it's resetting, and now they're in foreclosure. How can you deal with the legalities, or the law enforcement, and really make it tough on these lenders that are preying on these people?

GOVERNOR: Preston, do you want to talk about this?

COMMISSIONER DUFAUCHARD: Yes. There are existing remedies for fraud, obviously, and reporting the fraud to the Department of Corporations directly is very important. We have an 800 number too; it's 866-ASK-CORP. Reporting that to our office, reporting that to the Attorney General's Office -- if there is fraud involved, then there's no reason to get the lenders involved. You can report that directly to the Department of Corporations.

Q: Governor, the Mayor mentioned this earlier, about how this could affect the whole state in terms of tax revenues. I've heard you may have to look at some cuts down the road because of this. How is this affecting the entire state, even homeowners who don't have problems with their loans?

GOVERNOR: Well, like I said, this is a problem that does not only affect families, but it affects the financial community, it affects the state, the economy, businesses, it affects our bottom line, our revenues in our state. And we see our revenues coming in short every month by around 200, 250 million dollars. That means by the end of the year it could be over 3 billion dollars. So that adds to the structural deficit, so all of this will have an impact. So this is why I think it is very important that we take action on this as quickly as possible. And even though no one else -- this is the first state that has really put together a task force, and is really taking action on this, and sitting down with the financial institutions and doing something about it.

Q: Governor, typically how long will a lender be allowed to freeze a mortgage rate before it resets?

GOVERNOR: Well, I think that the idea here is basically to go and say look, you have bought a home and you thought that the value of the home would go up -- because that's what has happened for the last 10 years, values go up tremendously in California. And so you buy a home with almost no down payment, hoping that when that time comes where you have to refinance, or where your interest rate goes up, let's say, you go and refinance because now your equity has gone up. But that didn't happen. This is one of those situations, very rare situations, where the housing market is going down and now people cannot make those payments. So I think what the financial institutions basically want to do is not have all of a sudden all these foreclosures, so they want to give that break to the people and wait until the value of their home goes back up again. Like I said, it could be three years, it could be two years, it could be five years. Whatever it is, I think they're interested in working with the people that are the borrowers so they can get that initial help.

Q: Governor, this is a really serious, serious issue. You're a very popular governor. We see your face on TV quite a bit. You're in the Valley a lot; we appreciate that. How about doing a public service announcement to get the word out to air on all the major channels here in California, that this is a major crisis affecting Californians, and you want to do something about it?

GOVERNOR: Well, it's interesting you mention that, because I have made that announcement when we had our meeting in there with our local leaders, and I said that I'm going to talk to my wife and do together with her a public service announcement to let people know that it is absolutely important, that you got into this problem together, the lenders and the borrowers, so now you have to find a way out of this problem together. So when the financial institution or servicer goes and gets in touch with you, sends you a letter, makes a phone call, answer the letter, answer the phone call. It is very important that we work through this together. Everyone has to work together on this. There are a lot of people that are suspicious when they get that phone call, that it means this is the call where somewhere wants to take their house away, or something disastrous is going to happen, because it does happen every so often to people. And so what we want to make of is that they understand no, this is a call to work with them so that they can restructure and help them so they can make the payments, they can stay in their house, keep their ownership and keep holding on to that American Dream.

Q: It's a pride issue with a lot of people. That's the big issue, is they -- there's a stigma with losing your home. You need to find a way to comfort them, to say it's okay to reach out, we want to help you. Right?

GOVERNOR: Well, I think that everyone knows that it is a huge blow to people, to lose our home. It's a huge blow, and it takes, as I said earlier, it takes sometimes years to recuperate from something like that. But what we want to do is, we want to help people so they can keep their home, not lose their home. We want them to keep their home. And I think that the lenders are interested in having them keep their home. No one wants to have all those homes be dumped on the market, because that will just drive the price down even further. No one is gaining from that. What we want to do is -- there is an upside for everybody.

Q: Governor, if I could switch topics? There's been a breakthrough in stem cell research. You reaction to that, and how can that impact the future of research projects?

GOVERNOR: You're talking about the skin stem cell research?

Q: Yes.

GOVERNOR: Exactly. I think it was a huge victory. I think all of this adds and speeds up the process. I think that they're going to open up a lab over here in California, which is really terrific. So I hail it. I say congratulations to them for their great victory, to move stem cell research forward much faster. Thanks very much. Thank you all.