A booklet with background information on the housing crisis is available here: Mortgage Fraud and America's Foreclosure Crisis.

Years after the bubble burst in 2007, the housing market shows no signs of an imminent recovery. Foreclosures continue to devastate many areas of the country, including California, where the rate of foreclosure is one of the highest in the nation. The combination of foreclosures and a poor economy has driven home values lower, and as a result, 30 percent of California homeowners owe more on their mortgage than their loan is worth.

The roots of the housing bubble can be traced back a massive expansion of homeowner credit, often through complex or faulty mortgages. These exotic mortgages – such as interest-only mortgages and adjustable-rate mortgages – allowed borrowers to exchange lower payments during an initial period for higher payments later. However, many subprime borrowers found themselves overextended and unable to afford the loan when the time came for higher payments. This led to increased foreclosures and bankruptcies.

The steep rise in foreclosures led several large subprime lenders to file for bankruptcy or go out of business. And its effects continue to be felt by consumers and in financial markets around the world.

The Cost to Consumers

The increased number of subprime loans approved in the past decade have imposed major costs on consumers and significantly contributed to the recent surge of mortgage defaults and home foreclosures.

Overheated real estate markets, such as in parts of California, Florida, Nevada and Arizona, have been hit particularly hard.

In California, the percentage of adjustable rate subprime mortgages in delinquency has increased dramatically. And the number of adjustable rate subprime mortgages entering into foreclosure has also climbed to perilous levels. The wave of defaults on subprime mortgages has driven home prices down, putting pressure on borrowers with more traditional home loans.

Responsible Lending Standards

I believe that all Americans have a right to safe and decent affordable housing opportunities. And it is important to support initiatives that will help more Californians achieve the American dream of owning their own home.

The Dodd-Frank Wall Street Reform Act that was signed into law in 2010 included provisions that addressed faulty, exotic mortgages. The bill also increases oversight of mortgage originators in order to ensure that prospective homeowners better understand their financial obligations.

Tips for Borrowers

Three basic steps to better protect yourself from default and foreclosure:

1. Contact your lender as soon as possible.  Many lenders will provide options to help borrowers through difficult financial times. Be proactive and take action early to prevent further problems down the line.
    
2. Inform yourself about ways to avoid foreclosure by visiting the U.S. Department of Housing and Urban Development (HUD) website.
    
3. Contact a housing counselor approved by the U.S. Department of Housing and Urban Development, who can help you understand the law and your options, organize your finances, and represent you in negotiations with your lender if you need this assistance.  Find a list of approved housing counselors in California here.  

Additional Resources:

• If you or your spouse is on active military duty, visit the Veterans Administration website to learn about how you may qualify for a reduction in your mortgage interest rate resulting in lower payments.
   
• The Federal Housing Authority (FHA) works closely with customers who have FHA-insured loans. You may call the FHA at (800) CALL-FHA to for further advice about how to manage your mortgage.
   
• The Internal Revenue Service provides helpful answers to questions about foreclosure and debt cancellation on the IRS website.
   
• Further information about mortgage products and resources in California is available here.