Tuesday, 12/18/2007 Print Version | Email / Share
Governor, U.S. Treasury Secretary Paulson, Hold Stockton Town Hall
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GOVERNOR: Very nice. Well, thank you very much. Sit down, please. It's wonderful to be here in Stockton, and it's wonderful to have Secretary Paulson here with us. He came out here from Washington to talk to us about our crisis, with the sub-prime crisis that we have here in this state and all over the country, as far as that goes. First of all, let me just say -- I want to just say also, Mayor Chavez, thank you very much for the nice introduction, and thank you for hosting his event here today. We really appreciate it. You've been a great leader. Let's give him a big hand for his great work. (Applause)
And Senator Machado, thank you very much for being here today. I know you are very interested in that subject, and we have talked about it several times. And also Assemblyman Aghazarian, thank you very much, and also Assemblywoman Galgiani, thank you so much for being here today. Give them all a big hand also for their great work. (Applause)
I have to tell you that I am a little bit on a high today, because we have been, since the State of the State Address last January, we have been talking about health care reform, and that we are gong to go and solve our crisis, that we have 6.7 million people uninsured in this state, and that we really want to have comprehensive health care reform. Well, yesterday, after a whole year of negotiating and traveling up and down the state, and talking to Democrats and Republicans, and the labor leaders and business leaders, and insurance providers, and all the different experts and different stakeholders, and we brought them all together. Yesterday the Assembly passed our health care bill, our universal health care bill, and now we are moving on to the Senate. So this was a great step forward, a great step closer to our finish line.
So when we get that done, let me tell you something, I will be extremely happy, because this will be the first state in the union that will have universal health care. This country has tried this for almost 100 years. Way back in 1912 they have talked about universal health care. As a matter of fact, it was Teddy Roosevelt that talked about it. Now, 1912, this goes back when the Titanic went down, just to show you how far back. And this country has not been able to do that. Think about that. They were not able to do that, no state was able to do that.
But our state, I guarantee you, will be successful, because our state will have both of the parties, and labor and business interests, and the experts in the health care, all working together. So I just wanted to let you know why I'm very excited today. (Applause)
Thank you. But this is, of course, the responsibility of a governor. You have to come in, you have to have vision, and you have to bring people together. And this is what I promised when I was elected, to bring both parties together and to solve problems. And we have tackled a lot of big problems in this state, if it is reforming Workers' Compensation, or bringing businesses back to the state, creating almost a million new jobs in this state, or starting to rebuild California, our Strategic Growth Plan to build our roads again, to build more schools, expand our universities and all of those things. That's the responsibility of our legislators and the governor, to work together and to create this action.
But then also we have to deal with situations that one doesn't plan on, which is this crisis that we're in, the kind of burden that the homeowners are facing today that have bought a home and they want to become part of the American Dream, and now all of a sudden they have achieved the American Dream and they have this home, and all of a sudden they're facing a crisis and they don't know which way to go.
So we, of course, jumped into action just two months ago, and we started making agreements with the lenders and with the servicers to go and to start making certain adjustments and to freeze the interest rates, not to jack up the interest rates. And we were very successful in making deals with 25 percent of the lenders, and we just recently increased that amount and went up to 33 percent of the lenders. We found an additional three that wanted to come into this partnership.
And then after that we were very successful in putting aside 1.2 million dollars to launch a campaign. Now, why is the campaign important? It's because we want to let the borrowers know, don't make the mistake and avoid the lender, which so many have done. You know, you get a phone call, they don't want to answer the phone. They say, "Oh, my God, this is the call where they're taking my house away. I'm not going to answer the call." Or they get a mail and they ignore the mail, they don't respond. Big mistake. Get in touch and work this out with your lender. If you're a borrower, work it out with the lender, because it was a two-way street to get into the mess and it takes a two-way street to get out of the mess, so they both have to work together.
So what we basically want to do is, we want to go and all work together, everyone work together. And I'm so happy that the federal government is doing exactly the same thing. They made agreements with the lenders and with the services, and they have done a great, great job, with 20 more lenders. The Secretary is going to talk about that. So again, you're going to have a chance afterwards to ask questions on anything, if it has to do with this subject or any other subject. Feel free, loosen up, relax. We're all going to talk about something that is a serious subject, but at the same time let's have a good time. And let's not make it too formal, the whole thing. I know you're a little frozen right now, because you say, "Oh, my God, the Secretary of the Treasury is here, Secretary Paulson is here. We've got to straighten out our back, he's from Washington, he's so official." But he's a cool guy. (Laughter) He's a cool guy, I can promise. He's a cool guy, okay? (Applause)
So let me introduce Secretary Paulson. (Applause)
SECRETARY PAULSON: I tell you, that is a very tough act to follow. Let me say I'm honored to be here with a governor who has done such a great job in leading this state, and in being out in front and attacking this sub-prime problem. So I'm honored to be here.
Now, my job as Treasury Secretary is to spend a great deal of time focused on our economy. And our economy is healthy. The biggest risk to the economy is the housing problem right now, the housing slump. I've found that when I go around to different areas of the country where there are issues and talk to people, I learn. And so I was in Orlando, Florida yesterday, I was in Kansas City earlier today, and now here. Three different cities, different economic makeups, different issues, but they all have one thing in common; they all have high rates of foreclosure.
In Orlando and Stockton they had five or six years of unrealistically high appreciation of home prices, and now they've got dramatic declines. But Orlando has a stronger economy right now. You have other issues; you have high unemployment rates and so on. We're all working together to solve the problem.
Now, let me tell you about something that the Governor has already talked about, and that's the Hope Alliance that has been put together. We've worked to put this together, and it is a nationwide, industrywide approach to deal with the sub-prime problem. Because what we have here are the servicers representing 90 percent of the sub-prime industry, with the support from the lenders. And so the lenders have signed on to this and have supported this, which helps the servicers do what they need to do, and helps them stand up to potential lawsuits and counselors. And so this is an effort, and it's got three prongs to this approach.
The first, which the Governor mentioned, which is just essential, is outreach, getting to people in advance of the problem. Because what I was at first shocked to hear is that 50 percent of the people who lose their homes to foreclosure never talk to anyone. They're afraid to talk to people, they're embarrassed to talk to people. So in a minute when I turn it over to Pam Canada of NeighborWorks, I think she'll really make this point to you. But the first part of this aggressive outreach is a toll free number, advertising, really getting to people in advance.
The second part of this program is we're working to increase the number of solutions, creative solutions, affordable solutions, for homeowners who are struggling, mortgage solutions. So, new products: HUD has an FHA select program which will help 50,000 homeowners that are having problems with their mortgage this year. President Bush has proposed legislation which needs to pass -- we need the House and the Senate to act on it -- which is an FHA modernization bill, which will come up with an additional program to help 200,000 more people. So we need this. We have proposed legislation to increase the limits on tax exempt financing so that states like California can use it to help homeowners who are struggling with mortgage payments. Right now there's a program that lets the states help first-time homebuyers; this would expand that. So that's a program, the private sector is developing new products. So that's the second part.
And the third part also the Governor mentioned, which is very important, and that is coming up with a systematic way to efficiently move homeowners who are struggling with mortgage payments and are able to own homes into sustainable mortgages. Now, the part that has received the most publicity is a way to fast-track homeowners that have adjustable rate mortgages -- and let me remind you that there are 1.8 million adjustable rate, sub-prime mortgages where the rate will be resetting in 2008 and 2009. So you've seen the problem to date; the problem is going to get much worse unless we do something about it. So these mortgages are going to reset, and this program is to fast-track those homeowners that are going to be unable to afford the higher rate, but have the capability, the financial capability to own a home, into a very quick modification which would be a five-year interest rate freeze.
That's got the publicity, but there's another group of homeowners that are going to be facing resets that have a stronger financial situation. And they will be put into a process to refinance the mortgage, often at a lower rate than even the initial rate. Some will have no problem meeting the mortgage payments, and others will need to go through a somewhat longer process to make the case that they're going to need the interest rate freeze. But this group also will avoid foreclosure. So I talk about this not as the interest rate freeze, but foreclosure avoidance. That's what we're trying to do, keep people in their homes.
And then of course there will be some group of homeowners that haven't been able to even make the initial interest rate, and they're going to need a customized approach to be put into one of these HUD products or some other financing. And some of these people won't have the capability to own a home and they'll become renters again. But again, they can be helped greatly by counseling.
So this is a three-part plan. There is no silver bullet. There is nothing that we can come up with in the government that is going to totally take away the impact of a housing boom that was unsustainable, lax lending practices, a great deal of easy money. And so we will, as an economy we will pay some price, but we want to do everything we can to make a difference. This isn't a silver bullet; it will make a difference. And as the Governor said, we need multiple solutions, multiple approaches.
So with that, let me tell you, I look forward to your questions also. And I'm going to turn this over to Pam Canada, NeighborWorks. Counseling is critical. I'm sure she'll tell you that if you don't reach out for help you can't be helped. You've got to reach out first. The ostrich approach doesn't work. And so, Pam? (Applause)
PAM CANADA: I'm so very pleased to be here with Secretary of the Treasury Paulson and Governor Schwarzenegger. Thank you very much for allowing us to participate. There are many others here as well that are here because they're stakeholders and are working to help in some fashion against this issue, and helping people to preserve their homeownership. It is critical for our neighborhoods, it's critical for our surrounding communities and our economy, as well as, of course, the families themselves that are going through this particular problem.
NeighborWorks HomeOwnership Center, Sacramento Region, has been working on preventing foreclosure and helping people avoid foreclosure for quite a while now, as have many of our NeighborWorks organizations up and down the state, and of course across the nation with NeighborWorks America, in partnership with various state governments and the federal government, and of course private sector businesses that are stepping up and realizing they're a serious stakeholder in this issue and need to play a part in helping to find solutions.
What is being seen here in Stockton is being seen by NeighborWorks organizations around the country. Working with NeighborWorks America we've recently launched a consumer outreach ad campaign, and we worked with our state government as well as local cities and others to create a coalition for homeownership preservation. Several of our other NeighborWorks organizations around the state have also worked together with their elected officials and with their private sector partners, financial institutions, insurance companies and others to create coalitions that bring partners together that are stakeholders in this issue and have the same common goals of preventing foreclosure and helping people find solutions. There are solutions to be found.
However, over 1 million homeowners may be in danger of foreclosure in 2008. As Secretary Paulson mentioned, there are many more adjustable rates to be adjusted, and there are many people who are, as we speak, concerned about losing their home, and not sure what to do or where to turn. Having press events such as this, and working with our various media in getting the word out, is one way to make people more aware of what can they do. We've seen over and over, and talked to hundreds of thousands of people up and down the state that just don't know. They get a letter in the mail and they start to pack the boxes and move. They don't want the Sheriff to come and knock on the door while they're there, be embarrassed in front of their children or their neighbors and lose their home. They don't know that there might be a solution out there. So the more we can put the word out and help people prevent or find a potential solution to preserve homeownership, the stronger we will all be.
We, as a NeighborWorks organization, our primary business model is actually helping people prepare for successful homeownership. It was just in the last couple of years that our business model has shifted a bit, and our counseling focus has shifted to the post-purchase counseling. And we still do the pre-purchase counseling as much as possible, and try to also get the word out, the message there too, that for people who now want to enter the homeownership market and buy their first home -- which it's a very good time to do -- be prepared and learn how to become a homeowner that has a successful long-term opportunity to be a homeowner for years and years and generations to come. Look into homeownership education that will prepare you for long-term homeownership.
We have done a phone bank with Univision. We got huge numbers of calls with Univision, and that was wonderful. We've also worked with a couple of local cities in our region to bring foreclosure information and education to the various communities, and it's been very successful. One of those cities that we recently worked with Senator Machado and Assemblyman Aghazarian, as well as Congressman McNerney and Congressman Cardoza, who helped host an event close by here at the Stockton Arena, and the Mayor also helped with that. And we had 500 people show up at that Foreclosure Information Workshop. It was overwhelming. As the mayor said, it was good news, bad news. A lot of people came, and that's good; they got some information. And the difficult part was seeing so many people that needed that type of help.
One of the families that attended that event and reached out because they were concerned about their own home and the possibility of losing their home through foreclosure, one of those families is here with us today to talk about their experience, from the clinic and the additional education and counseling that they received through NeighborWorks. I'd like to introduce our friends here, Mr. and Mrs. Shields, and their Housing Counselor with NeighborWorks, Mike Himes. (Applause)
MIKE HIMES: There's a lot of media about you can stay in your home, there are things the lenders are willing to do to work it out with you. And there are many clinics that happen, many opportunities for people to go and find out how that happens. But where the missing link is after the meeting is finished and they walk out the door, how do they put all of that together? How do they get in contact with their lender? How do they determine whether homeownership is affordable? What opportunities are available to them?
And this is where the counseling comes in. It's pretty exciting to do what we do, because we are able to see the face of the people that this is happening to. These are real people, and I get a little annoyed when I hear, "Well, they should have known what they got into." But in reality, I look back at the time when I bought my first house, and who did I put my trust in? Of course the loans were just the standard fixed rate FHA loan during that period of time, and things have changed. But you know, you trust the people that are telling you, "Here's how you're going to get into the home." But it's more than just getting into a home. It's getting yourself set up so that the financing options that are available to you are going to make that a healthy ownership for you.
We talk to a lot of people who are struggling in keeping their homes, and there is a light at the end of the tunnel. Things are better now than they were a few months ago, and we're finding more and more lenders now opening up to options for potential home buyers.
John and Kelly, it's a very interesting situation, because when they came in for their counseling they had everything laid out. They had all of their forms filled out, they had their income tax return, they had all of their bills, they had all the correspondence with their lender already written up. They had a timeline of everything they did. So I pretty much said, "Well, we're done." I didn't have to say much of anything, since they had done the work. But not everyone is in that situation. You know, everybody at some point in time needs a helping hand up, and that's where the counseling comes in; how to speak to that lender, how to put together all of these documents that are going to be required so that the lender can review them and make some decision, and then help possibly in some negotiating, in making sure the loan stays affordable.
I'm very excited about government intervention, the things that are happening in the state and on a federal level, and I really appreciate you gentlemen for everything that you're doing there. And we're finding now more servicers opening up and saying, "Yeah, we can do this." And it's a pretty great thing that's happening. We see a lot of opportunities for success.
Anyway, at this point in time I'm going to turn the microphone over to John. Thanks for being here, John. (Applause)
JOHN SHIELDS: Thank you. We were invited to attend this meeting at the town hall to share with others the need to seek help from the various organizations available. We contacted the number, 888-995-HOPE organization, and we let them direct us, and they took down some financial information for us and they directed us to NeighborWorks. This is the program in Sacramento. We immediately contacted Mike, and we made an appointment. Excuse me, I'm a little nervous. Mike helped us, to steer us in the right direction, because we were a little nervous and we didn't know where we really stood at this point.
After that we contacted our mortgage company, and we started working with our mortgage company to see if we can try to work out a resolution with them. At our mortgage company they immediately -- well, not immediately, it took some time. It took like two months. We kept calling them over and over and over, trying to get some sort of feedback and some help. And they sent us a packet in the mail, and this was a modification package that they sent us. So they asked us to fill out the modification package and to send it back to them. We did that, and now they're in the process of trying to work out something for us.
We felt like we wanted to walk away from our home, but we didn't. We continued to try to contact them, over, over and over. And again, with the help from this gentleman over here, Mike, we feel a little bit at ease.
KELLY SHIELDS: We can sleep now.
JOHN SHIELDS: Now we can sleep a little bit. It's been difficult. We have our children -- and we're sure everybody else is going through the same problem that we're going through. But it does work, but you have to call the different organizations out there. I didn't have faith.
You know, I commute back and forth from Stockton-San Jose, and I stopped in the middle of the Altamont, and I figured I would go ahead and give one of the counselors all my financial information. It took me about an hour to give them. After I did that, they immediately gave me two numbers to contact, and I turned around and I contacted them, and I was able to get an appointment with them, with NeighborWorks. And then we went down there, and --
KELLY SHIELDS: It put your mind at ease.
JOHN SHIELDS: It did put my mind at ease. Now, hopefully, my mortgage company will go ahead and be able to work with us. (Applause)
GOVERNOR: That was the last speaker. That was really great, I like the way you explained that. And I can really feel for you and how difficult it is. And I liked that, when you both stood up here, because it sounded like my wife and me standing together. She's always telling me what to say, so it was the same thing. (Laughter) So I can totally see the situation here. Very good.
But anyway, the difficulty you can see here already is just how difficult it is for some people to even talk to their financial institutions, to talk to the bank and to the lenders and the people that give you the money, to understand the forms and all this. So this is why I think the message here is get help. This is the important thing. Even if you didn't get help when you got into the mess, get help now. This is the important thing.
So let's open it up to some questions. The Secretary and I, we both are ready, or if the Mayor wants to join in, if you have questions for him. As a matter of fact, anyone that you have questions for here. There maybe is a specific question that you have for the Senator or anything like this. They all are ready to answer your questions. So let's start right back here. Yes?
Q: Thank you, Governor and Secretary Paulson. I'm with the California Reinvestment Coalition, and we're an advocacy group comprised of 250 non-profits throughout the state. And I just want to acknowledge you for taking a leadership position on these issues, and in particular in pushing for long-term loan modifications, which we think are the best way to help the most people deal with the crisis. At the same time, we have some concerns about the limitations of the two proposals, and I'd like to just raise a couple of issues and see if you would respond.
One, it seems that in large part these proposals are relying on voluntary compliance from the industry. We really need these loan modifications. I know that the Commissioner of the Department of Corporations has taken some strong steps in collecting data to make sure that the promises are being kept, and I just wanted to get a reaction as to whether that could be kind of the beginning of more detailed information that's made publicly available, so that everyone knows that the industry is complying with these promises that are so needed.
And then secondly, a concern that the universe of borrowers who would be assisted by the rate freeze programs, the loan modifications, is somewhat narrow. And just to raise one specific, a large number of people have defaulted on loans as a result of a rate reset, and your programs really focus on people who are facing resets and their loans becoming unaffordable. And it seems like there's really no significant difference between those two categories of folks. And I think I didn't even hear, Secretary Paulson, that group represented amongst the three or four groups that you had talked about. Can you extend the benefits of your good programs to include borrowers who have fallen behind as a result of these unaffordable rate resets who are really similarly situated? They're just on the wrong side of the reset.
And again, I thank you for your efforts.
GOVERNOR: Well, thank you very much. I just want to go first on this one here, because we started a little bit earlier our program and our negotiations with the lenders. So I can tell you, like I said earlier, that we have increased from having 25 percent of the lenders now to 33 percent. So there was great reaction there, that more and more lenders are coming in and want to be part of it. And with the great work of what the Secretary has done, to have 20 lenders, to make a deal with 20 lenders, that's really powerful. So we are covering a lot of ground here.
But No. 2, within a short period of time we have gotten the numbers back, because we are interested not only to make a deal, but to actually see results. And so one of the things that I'm very happy to share with you today is, there's anywhere between 20 percent increases in modifications in the loan, up to 400 percent increases. So there is a huge progress that has been made since we have gotten into this.
So I was very happy to hear that the lenders and the servicers are really willing to help. I don't think they're out to get anyone. I don't think there's a conspiracy to take the people's homes away. I have had the experience, since I have been in real estate my whole life, since I came to this country. I can tell you that banks, when they make the deal, or lenders make a deal, they want to get rid of this problem and they want you to deal with it. They don't want to take the house back, they don't want to take the property back and then have to resell it and all of those things, and lose money on that. So I think there is a willingness there, that is what we have noticed, and so we are very happy about that.
The other thing I want to say is I don't think when we make agreements with lenders that this is a deal where we think it's going to solve 100 percent of the problems. No. If we can just take out a big chunk of the problems -- people, for instance, they are specifically people that are in their homes, people that are paying their mortgages, and people that cannot afford the increase in the mortgage. Let's help that group. And of course there are people that are going to say, what about the people that are paying their mortgage regularly, why are you not helping them, the people that are not really in this kind of a troubled situation? Well, we can't help everybody, but we can help the people that really need the help most, and that's what we are trying to do.
And with that, I'll hand it over now to Secretary Paulson. Please.
SECRETARY PAULSON: Governor, you covered most of the points, but again, this is -- lenders do not like foreclosure. It's not in their best interest. Under normal circumstances what you would find is, if a homeowner had problems making a mortgage payment, they would get together with the lender, and in most cases they would work something out, they would strike a deal. What we've done here is get the private sector together to avoid what I would call a market failure. And why do I say a market failure? Well, first of all, the system has changed a bit. The firm you are making your mortgage payment to is in all likelihood not the firm that originated the mortgage, and the investors are now scattered around the world. This makes the decision making process very cumbersome. Now, that would work when you had a stable housing market, but now with the number of struggling homeowners you've got a volume of resets coming.
And so what this program does is it comes up with a way of fast-tracking homeowners that are going to face problems making a payment, and comes up with something which is a market solution during a period where it's a very unprecedented period. So again, this is something that lenders want to do, servicers want to do, and homeowners want to do.
But I've got your point, and one of the things we've pressed for, and one of the things you're going to see, is you're going to see some benchmarks and public disclosure so we can follow and monitor. Because if this isn't working we're going to need to make changes. We're absolutely going to need to make changes. So we're going to be all over this, we're going to watch it and make changes if need be. That's No. 1.
No. 2, this program if forward looking. So I'm sure there are people that have run into trouble in the past -- and again, this doesn't preclude the servicers or the lenders helping out those people. And that's why I would just urge those people to go right ahead and call that 88-995-HOPE, and call that and ask for help. And there very well may be help.
GOVERNOR: Thank you. Yes, you have a question? Please.
Q: My question is this: Most of the people that are homeowners out here in Stockton, they were put in loans that you had to refinance it every two years. And then your house goes up, so of course you're going to try to pull some money out of there to do some type of improvement. But when the market just automatically bottomed on us like this, we can't refinance. And then, like myself, I went through a death in the family made me -- put me in a situation where I am going to go into foreclosure. But I work every day, I've never been late until this situation happened. But the mortgage company is not trying to help me. I've called the HOPE line. They tell me to put my house up for a quick sale. That's not help. And you know, I've lived in this home for two and a half -- well, three years, I've struggled to pay for this by myself, raising two grandkids. Where's the help for us?
SECRETARY PAULSON: I tell you, when I hear your story, I'll tell you, I'm glad I've come here and I'm glad I've heard the story, because it is a sad story. And unfortunately, and very unfortunately, it is difficult to come up with a program that is going to work in every case. And we've gone through a period of unprecedented rises in home prices, we've had a big slump here, and it's not going to work in every case. I don't know what else to say other than that. And I'm hoping that maybe some of the programs that we're asking Congress to approve, the FHA Modernization Act which will have HUD programs to help up to 200,000 home buyers, will make a difference. And so without knowing more about your situation it's difficult for me to help you right here. But I've got to tell you something, it is something we should all care about a great deal. I don't know, Governor, what you would add to that?
GOVERNOR: First of all, I very much appreciate that your'e pointing this out. I would like to just tell you that this is the case a lot of times, that people when they go into an investment -- I've done this many times -- where you say I know the way real estate is going in California, it's going like this. And if I buy a house today with 500,000, for 500,000 dollars, in two years from now when they ask me to refinance it will be worth 600,000 dollars. Yes! Right? Well, then you find out two years later it's worth 400,000 dollars, and now they come to you and say you have to refinance, and there's nothing available for you and you lose your house.
So I totally understand that problem, and I want to get your card, because I want to find out why your lender cannot help you. Okay? So please give me your card. Thank you. (Applause)
SECRETARY PAULSON: Governor, one additional point to make here, because you and I have been focusing on the immediate problem, which is to help people in need today, help our economy, help our communities. There's another aspect of this also. What kinds of policy changes do we need to make in the future to make sure things like this don't happen again?
GOVERNOR: Absolutely.
SECRETARY PAULSON: And so what kinds of things? And there's just a variety of things that need to be done differently. The Federal Reserve -- I haven't had a chance to read all of them yet, but they have come out with some new regulations on unfair and deceptive lending practices there. There are going to be some regulations on disclosure. And just a lot of disclosure is meaningless. We need good disclosure that people understand. Any of us that have bought a home know you've got pages and pages of boilerplate, which is just sort of covering someone's behind; it's hard to read and understand. We need simple disclosure that say's your interest rate is this, and in a couple of years it could be as high as this, and both parties sign it. (Applause)
That's not going to help you today. You know, that may help your grandchildren, or your children, so I'm must delighted that the Governor is going to take up your case. But unfortunately, there are all too many stories like yours in this country today, and we're just doing everything we can to help.
GOVERNOR: The important thing also to know is -- and you know, I'm the forever optimist in all of those things -- the good side about it is that you couldn't be having this problem in a better state than California. And the reason why I'm saying that is -- (Applause)
I'm telling you. And the reason why I'm saying that is because for us, if you look at history, of how much our property values have gone up, how much our homes have gone up -- I remember that I got a house in 1980, and then by the year 2000 I donated the house to a Catholic church down in Los Angeles for helping them build the Cathedral. And by that time that house, that cost us 600,000 dollars, by that time was 3 million dollars. Now, this is from 1980 to 2000, this is 20 years. I mean, think about that. But the reality of it, I only put in there 40,000 dollars, and the value went up from 600,000 to 3 million dollars. We're talking about 2.4 million dollars it gained in value with a down payment of 40,000 dollars. So that is reality in California.
Now, in the meantime, yes, the market went like this, with several bumps. Several times it probably went below value of what I paid for it, and then it went up again. So the longer you can hold onto your property -- this crisis is not going to last. This is a bump in the road, that's how you have to look at it. This is a bump in the road, and eventually the market is going to take off again, and there will be more demand than there is supply, and all of those things will happen. So that's the good news.
That's why I say in other states they have a problem, because who wants to move there? Let's be honest, who wants to move there? But this state everyone, the whole world wants to live here, everyone wants to come here, and that makes the values of the property go up. So that's the good news about the whole thing. (Applause)
Yes, please.
Q: Yes. For people that are already losing their house or have lost their property, they had to pay capital gains, because the IRS sees it as a gain, a profit. Are they going to be doing something about that? Because they already lost their home, they cannot afford to live there, they have to go and rent a house, and on top of that pay taxes on whatever their house sold for. The bank sold it for half of the amount they paid for it, so they're responsible for the difference. Are they going to do something about that, not to charge people for the capital gain? And how far are they going to go back to forgive people the profit, that the IRS called a profit?
SECRETARY PAULSON: First of all, I don't have a solution for you on a capital gain. You know, I would like it if we had a lower capital gains tax. Unfortunately, the Secretary of the Treasury doesn't make that decision, Congress does. And I do believe that often when there's a capital gain it isn't a real capital gain after inflation. So there's no doubt that if you're forced to sell and able to sell your house, that is a tax that I personally believe is unfair, and I wish it didn't exist.
The one thing we've proposed, the Treasury has proposed, and I believe will be enacted by Congress is some tax relief for those homeowners who as part of a restructuring in working through their home situation have their principle on their mortgage reduced. And they would normally be hit with a tax on that, and I think you're going to find legislation that provides relief from that. And in a very perverse case, if someone loses their home in foreclosure and so their mortgage debt has gone away, they could be hit with a tax on that debt forgiveness, and so we're proposing tax relief there. I wish I was able to give you the tax relief on capital gains, but that's a tough thing to get from the Senate and the House.
GOVERNOR: There's a question right over here. Please.
Q: Governor, Mr. Treasurer, I'm Steve Pitola (PH) I'm a retired mortgage banker here in the area. And I've seen a lot of loan processes, I've also maintained my real estate license. A lot of things got us into this situation, but a lot of it is greed. What are we going to do to professionalize the real estate business, the oversight lack of your Department of Real Estate who allowed these things to go on? They knew what was happening. One of the worst things that's happened is the real estate agent is also acting in many facets during the process. He may be doing the loan, he may be doing something with the title, the appraisal. The VA and FHA codes -- that's not the law, but it's in codes -- prohibit more than one piece of the transaction. That's a safety thing.
These people are making killings with these loans. And of course if they're going to make more money with a sub-prime loan, and they ignore the offers of FHA and VA, which protect the consumer -- many of these people would not be in that case if they were able to buy FHA or VA. And with a lot of the programs that the state has, the CHAFA which are excellent for first time homebuyers, those offers were ignored or the prices just could not keep up with it, and nor could the incomes. A 44,000 dollar median income is not going to buy a 400,000 dollar house.
I want to see the colleges in this state professionalize the business. It would take a transitional period. If you want to become an accountant you take 132 units of college. That way people will understand the process of how the money is made, what the ethics are of business law, and the economics that go about making money in this economy of ours. It isn't just grabbing the commission check and going down to the Mercedes dealer and buying something. There's a lot of complicated things, how the money is determined, all these things that go into rate resetting. It isn't just because the bank wants to make more money. No, there are many, many facets, from our world, global position, which is in jeopardy because of this. We need to say I am now an educated real estate agent with a business degree that allows me to do business in this state. Not coming from the car wash, two weeks later, and you have a license to ruin somebody's financial life forever. And a lot of these people out here are the victims of those types of things. DRE is just a cash cow. They need to be investigated, and that, sir, is your responsibility. (Applause)
GOVERNOR: First of all, thank you very much for your suggestion. And we have three legislators sitting here, and I'm sure they will respond to that. Yes, please, Senator.
SENATOR MACHADO: Your questions and your comments are right on. This past year I worked with the Governor to initiate legislation that would provide greater oversight.
With respect to the Governor's Department, the Department of Corporations, the Department of Real Estate, we did provide them with additional resources to be able to provide for that oversight. In addition, we worked very closely with Preston DuFauchard to make sure that they would go out and do the outreach, and appraise the licensees under that Department to determine what they were doing. And as a result of that we are in communication for additional reforms to address the very problems that you have raised. There is no excuse for the predatory nature of some of these agents. The oversight is being taken care of -- not as fast as we would all like, because it's a question of resources, and it's a question of understanding the problem and being able to react to it. But I want to say that the Governor's Office, the Governor personally, has been very interactive with this, and with his three agencies we have been able to make monumental steps this past year, and we are not finished.
GOVERNOR: Thank you very much. Thank you, Senator, we really appreciate that. A big hand for him. (Applause)
But I think what is also important to know is that a lot of times when you have a crisis like we have now it gives us an opportunity for everyone in the Legislature and the Governor's Office, all the way up to Washington, to really look at the whole situation and to see, where did we fall short? What do we need to do so that this crisis does not happen again? And there are several things that can be done.
And I'll just tell you as an example, when I came into office we knew that our levees are vulnerable, that if one levee breaks it will wipe out hundreds of thousands of homes, there will be huge flooding and all this, and they're very vulnerable to an earthquake or any big storm. No one would listen to it. This was not a sexy idea, so no one paid any attention to it at all. Only after we have gone back and gone back, and tried to get this done, only after Katrina happened and the people in California found out that our levees are more vulnerable than the ones in New Orleans, then all of a sudden everyone in California responded. And it passed on the ballot like this, the 4.1 billion dollar measure, as you all remember. But they didn't respond before. It was the crisis. It was the crisis that did it, that woke everyone up.
And I guarantee you that this crisis will wake everyone up too, and to look at everything again, the way we do our dealings, the way real estate works, the way the lending works, the borrowers and everyone. Because like I said, it's a two-way street. It's the borrowers made mistakes, and the lenders make mistakes in this, and now together we have to get out of this mess. So thank you for participating, we appreciate it very much. Thank you. (Applause)
Anything back here? Yes?
Q: My name is Ralph (IA)
GOVERNOR: Just a second.
Q: Oh, okay. The big part of the problem as I see it, is it's a plumbing issue. And of course what you're doing is great with helping the people from going into foreclosure. But we have in Stockton alone over 1,000 REOs. And so with that competition, as for this lady here, it's tough to sell the homes. If we were able to come up with 35, 40 million in private investing, finance the rest to buy those 1,000 homes and then set a limit where we only put out 10 to 15 a month, so a 10-year process in doing away with those 1,000 homes -- is there something that you can do to help negotiations with the bank to come up with something like that, to eliminate all this competition and help the people that are going into foreclosure, so that they can have an opportunity to sell their homes, or have the value high enough that they can refinance?
GOVERNOR: Well, there are some companies that came forward, and they started investing for bridge loans to help people, because a lot of times -- and maybe David, you could talk about the bridge loans? But there are many people that have a situation where their mortgage payment is, let's say, 1,200 dollars, to make up a number. And then all of a sudden it jumps to 1,600 dollars. So they don't need for someone to give them 1,600 dollars, but they maybe need someone to help them with that 400 dollar difference for the next 2 or 3 years until the property value goes up and until you can refinance. So it doesn't take that much money, but it's a bridge loan. So there are people now coming forward that invest in bridge loans. And David here has been very much -- this is David Crane, who is our advisor in economics and job creation and financial situations. Maybe you can get into that a little bit.
DAVID CRANE: Thank you, Governor. We announced something a week or two ago in Oakland, for example, where a foundation contributed a million dollars as a start to create a program to bridge 20 to 50 Oakland homeowners for roughly 10 years, through the difficult period on their loans. And these were people who would otherwise not qualify for any beneficial effect from the streamline program that the Governor or the Secretary announced, or a case-by-case modification with their lender. And that program is also tied to financial literacy classes where the borrower has to take financial literacy classes and learn more about how to manage their finances. Also, they have to eschew all debt, take on no new debt in connection with this process, as they get through this 10-year period.
And the Governor's plan is to grow that program larger. This next week, for example, we're meeting with a number of other foundations to add capital to this program, and maybe one of those foundations could be helpful in this particular region. In fact, if you have foundations in the Central Valley or the Stockton area that you want to refer to us for that purpose, send them our way and we'll see what we can do. Thank you.
GOVERNOR: Thank you very much. Thank you. (Applause)
>>: We're going to have time for one last question, please.
GOVERNOR: God, you're strict today. Wow. Do you come from the school teaching background? Unbelievable. Yeah, there's one over here, please.
Q: Thank you, Governor Schwarzenegger and Secretary Paulson, for coming today. I'm one of those homeowners, and I struggled with coming here because I thought, gee, I don't want everybody to know. But in June I'm staring down the barrel on an 8,000 dollar a month mortgage payment. So if anybody needs help, I think I certainly do. And I think the problem is very complex, because both of my neighbors are mortgage brokers, and I just started talking to them, and they said, "We're in the same situation." And we thought wow, how did this happen? All of us are educated. And like you, Secretary Paulson, I am a civil servant, and I worked for some time in Washington. So you would think -- I never saw myself in this situation, but unfortunately I and all my educated neighbors are in the same position.
So I wanted to know if there was anyone here that could help someone like me, who has talked to the bank -- in fact, Secretary Paulson, I wrote you a letter. But I talked to the bank and they said, "We're sorry, but your loan has been securitized, and we can't modify your loan. And oh, by the way, even if we would modify your loan you have to first be three months late before we'll even let you talk to loss mitigation." So --
SECRETARY PAULSON: I tell you, from what I can hear, our program is made for you. It is absolutely made for you, this Hope Alliance, because as I understand it, you're current on your payments, you're facing a payment you're not going to be able to make. And so you just call that 800 number, or just get right in touch right now with a counselor, because again, if our program works the way it's supposed to work, you and your neighbors, even the mortgage brokers, are going to be put into a modification. And that's the way it's supposed to work. I can't guarantee it will work that way in every instance, but boy, if it doesn't work that way in your instance I want to know about it, because we designed the program, and the industry did, for people like you.
And you're right. The investors -- one thing I might just say more broadly -- the gentleman up here who said there needs to be some changes in the oversight, the education, training, minimum standards for brokers -- I think we need standards, nationwide standards across states, and monitoring and so on. But there are a lot of other things that need to be changed in terms of the rating agencies, the securitization processes, the way they work. But again, this program is designed to deal with this. And we would like to talk to you after the meeting on this one, and I want to follow that very closely. (Applause)
MIKE HIMES: I'm so glad you brought that up, because the method of handling delinquencies is, up to now, antiquated. And what you're going to find -- this is where you can't give up, because what you're going to find if you're not delinquent yet, it's always been the process to send you over to a loan officer to refinance into a new loan. That's just the way it's been historically. As soon as you're past-due you go into early collections, and early collections last 60 to 90 days. And your option there is to double up on your payment. Your missed -- how can we spread that out over the next 6 or 12 months? So the idea is after that, after 90 days, now it's going into loss mitigation, because now the lender is thinking, what do we have to do to mitigate our losses, to lessen our losses? And this is where the door opens up to other options. The whole idea of what these gentlemen are saying and trying to convince the lenders is let's skip those first two stages. Let's get right to loss mitigation and start saying, what is it going to take to make this person a successful homeowner and a win/win for everyone? So don't give up if your lender is telling you I can't help you, or sending you to refinance, and find out that hey, there's no equity to refinance.
SECRETARY PAULSON: This program is the easiest, should be, for those who have made their initial payments, aren't going to have the capability to make the stepped up payment. So this is -- the way this program works, it's either supposed to go into immediate modification with a freeze or into refinancing. Okay? One or the other. So again, what we'll do is, right after this meeting you and one of the gentlemen who are here with me are going to get your information and we're going to follow up on this one. And if this doesn't work, then we've got a bigger problem, okay?
GOVERNOR: Thank you very much. Thank you. (Applause)
We want to thank all of you for being here today and for giving us a little bit of your stories, and we learn from that. And I just want to make sure that you understand we did not come here to solve everyone's problem, but we wanted to again put the spotlight on that issue, and to let people know, act. If you have a problem, don't wait for anything. Act. Get in touch with your lender, or do what you're doing, just start thinking about it and get in touch, and really get help. Get outside help if you can't handle it yourself. But do something about it, that is the key thing here.
I think that Stockton is a beautiful place. I know the values of your homes will come back, I know properties will come back, I know businesses will come back. It's a great, great place, one of my favorite cities; I always love coming back here. So it was great to be here today with all of you, so I want to say thank you again to all of you for participating, and I'll be back. Thank you very much. Thank you. (Applause)
