Fallout from the Subprime Mortgage Mess in California and What We Must Do

[courtesy of California Progress Report]

In this week’s Democratic weekly radio address, Ted Lieu, Chair of the Assembly Banking Committee, and Assemblymember Kevin de Leon present legislative remedies to reduce the impact of the subprime mortgage crisis.

You may listen in English or Spanish or read the transcript below.

Hello, this is Assemblymember Ted Lieu, chair of the Assembly Banking and Finance Committee.

As our state faces looming budget shortfalls that threaten vital funds for infrastructure, public safety, and social services, the emerging sub-prime mortgage crisis is poised to jeopardize our attempts to salvage our state's financial commitments.

Because reckless mortgage lenders issued variable interest rate home loans to folks that simply couldn't afford to pay their monthly bills, 1 out of every 88 homes in California are currently undergoing foreclosure.

According to the Center for Responsible Lending, nearly 180,000 California homes will be lost to foreclosure from the 826,900 sub-prime loans made in 2005 and 2006 alone.

California could lose nearly $3 billion in property tax revenue and another $1 billion in sales and transfer tax revenue.

Remarkably, an estimated 61% of the sub-prime mortgage borrowers would have qualified for loans with more reasonable monthly payments, had their lenders not been so narrowly focused on short-term profits.

But this isn't just a problem for those about to lose their homes.

Home price are expected to decline in California by up to 20-percent and that’s because each foreclosure within an eighth of a mile of a single-family home results in a 1% decline in the value of that home.

And working- and middle-class neighborhoods are especially in danger of being blighted due to abandoned homes.