Friday, Aug. 29, 2008

Crisis Testimony

U.S. House banking committee chief will hold hearing on valley foreclosures

STOCKTON -- Testimony on how foreclosures are hurting the Northern San Joaquin Valley will be offered during a House Committee on Financial Services "field hearing" Sept. 6 in Stockton.

Valley housing experts and community leaders will share their views with members of Congress.

Rep. Barney Frank, D-Massachusetts, the committee's chairman, will attend the event and gather information on behalf of the full 70-member congressional committee.

The public is invited to listen to testimony offered during the hearing, which will start at noon in the Stockton Arena, 248 W. Fremont St.

Among those invited to testify will be:

Patty Amador, president of Ambeck Mortgage Associates of Modesto

Merced Mayor Ellie Wooten

Carol Ornelas, chief executive officer of Visionary Home Builders in Stockton

State Sen. Mike Machado, D-Linden, chairman of the Banking, Finance and Insurance Committee

Cynthia Abbot, Sacramento field office director for the U.S. Department of Housing and Urban Development

Pam Canada, district manager of the NeighborWorks HomeOwnership Center, Sacramento Region

Their comments will be included in the Congressional Record.

Rep. Dennis Cardoza, D-Merced, and Rep. Jerry McNerney, D-Pleasanton, asked Frank to hold the hearing in Stockton.

San Joaquin, Stanislaus and Merced counties have the highest foreclosure rates in the nation. More than 20,000 homes have been lost to foreclosure in the past year, and the volume of defaults keeps rising.

Nearly 12 percent of all mortgages are 90 days or more delinquent in Stanislaus County and more than 15 percent are delinquent in Merced County, according to research firm First American CoreLogic.

"This is an incredibly serious problem and getting worse," Cardoza said. "For us, this is as devastating as Hurricane Katrina. ... If it had happened in one week, the federal government would have sent in Army troops to help us, but it happened over time" so the impact isn't widely understood.

Persuading the Committee on Financial Services, formerly the Banking Committee, to hold a hearing in Stockton is key to raising awareness on how bad the situation has become.

"We need to make our plight more high-profile," Cardoza said. He wants Frank to better understand the region's fore- closure crisis. "I need someone else to pound the table with me. This hearing is a way to galvanize the attention of Congress as a whole."

The hearing's formal title is "The Effects of the Foreclosure Crisis on Neighborhoods in California's Central Valley: Challenges and Solutions."

Amador, whose 20-year-old Modesto mortgage company is among the region's largest, will share her concerns about recent changes Congress made to mortgage finance requirements.

She said the valley's large number of foreclosures have lowered home prices, which has enabled sales to "bounce back" because first-time home buyers now can afford homes.

"Many of these buyers have the ability to qualify for loans and make payments on safe, fixed-rate mortgages. Unfortunately, few have the funds necessary for the down payment or closing costs," Amador said. "Recent legislation has not only eliminated a widely used financing tool, known as Nehemiah, but will also increase the amount of required down payment along with the monthly payment as a result of increase mortgage insurance requirements."

So-called Nehemiah programs provide buyers the down payment required by lenders, such as for Federal Housing Administration loans.

A home seller donates money to a Nehemiah group, which then "gifts" that money, minus a processing fee, to a buyer to use as down payment. That enables the buyer to get the down payment needed to qualify for a loan.

Congress, however, passed legislation this summer to forbid such gifts after Oct. 1. The argument against them is that sellers simply increase the sale price by the same amount as their donation, which means government-insured FHA loans end up as 100 percent of the home's actual value. When buyers don't have their own money invested in a home, they're more likely to default on their mortgage.

Many first-time buyers, however, depend on down payment help to become homeowners, Amador said.

"Now is not the time to be taking away financing tools, nor increasing costs to borrowers, if we are going to come out of this 'crisis' anytime soon," Amador said. "If we back financing tools with prudent underwriting, we can bring this market back without the risk of a reoccurrence of bad loans to the wrong borrowers."

Although testimony at the Stockton hearing is by invitation only, Cardoza is encouraging people who have been hurt by foreclosures to write to him by Sept. 5. He said he will submit those letters to the committee, and they will be read by its key staff members.

"The individual cases are compelling, dramatic stories," Cardoza said. Such stories can help document the far-reaching effect of the problem.

Letters to Cardoza should be sent to: 137 E. Weber Ave., Stockton, 95202.

Bee staff writer J.N. Sbranti can be reached at jnsbranti@modbee.com or 578-2196.