California attorney general Edmund Brown Jr. today sent a letter to 10 major bank and loan servicers in the state calling for the disclosure of their detailed plans to help certain homeowners manage the drastic payment increases on their pay option adjustable rate mortgages (ARMs).
California homeowners hold nearly 60% of the nation’s pay option ARMs originated between 2004 and 2008, the attorney general’s office said. Nationally, about 1m of these loans are schedule to reset in the next four years, creating higher payments for many loans on the brink of negative equity.
California accounted for more than 25% of the nation’s foreclosure activity in Q309, the attorney general’s office said, with 250,000 homes receiving foreclosure filings in the state. In addition, foreclosure activity increased nearly 20% from 2008 to 2009, and Brown said pay option ARMs could make that problem worse.
“Homeowners with Pay Option ARMs are sitting on ticking time bombs that the lending industry has the power to defuse,” Brown said. “Unless these banks and loan servicers act quickly, hundreds of thousands of mortgages will reset across the state, creating a new wave of foreclosures.”
This is the latest in Brown’s mortgage-related consumer efforts. In October 2008, the attorney general’s office settled an $8.58bn suit against Countrywide Home Loans that claimed the once mighty mortgage lender deceived borrowers by misrepresenting loan terms, loan payment increases, and borrowers' ability to afford loans.
Brown's request was made in a letter sent to Bank of America Home Loans & Insurance
; Wells Fargo & Company
; JP Morgan Chase & Co.
; Litton Loan Servicing
; Ocwen Financial Corporation
; OneWest Bank
; American Home Mortgage Servicing
; Saxon Mortgage Services, Inc.
; and Select Portfolio Servicing
In the letters, Brown asks the lenders and servicers to provide the attorney general with the number of pay option ARMs secured by California homes, the number of those loans that have negatively amortized, and the average dollar amount of that amortization, an explanation of what customer service efforts the lenders and services are taking, including advance notices for borrowers whose loans are about to reset, as well as what modification programs the lenders and servicers plan to offer to borrowers whose loans are about to reset.
Write to Austin Kilgore