California State’s programme to halt foreclosures is facing criticism.

California State’s programme to halt foreclosures is facing criticism. The plan involves $700 million to help 40,000 homeowners facing foreclosure. But many activists think that this is another measure to bail out the mega banks rather then help the borrowers. The charges were made at a news conference. It has led to the surfacing of new tensions regarding the foreclosure crisis that persistently continues to defy all remedial measures initiated by the government.

Those representing the unions of the state, churches and other community groups opine that that the programme to partly pay off the mortgage is heaving tilted in favour of the banks. Even after reduction the dues weighing down on the borrowers would be too much for them to shoulder.; it would still be heavy enough for them to face foreclosures. These groups contend that the banks should bear the onus of more losses so that the mortgages are trimmed down to be at par with the current market property prices. Principal reduction is a financial practice that is being resisted by lenders across the country.

Yvonne Mariajimenez of One LA-Industrial Areas Foundation said, “Our concern is this plan provides far too much funding to the investors and banks in return for mortgages to be reduced”. She was talking to California Housing Finance Agency directors recently.

The biggest programme involving principal reduction will be launched by CalHFA on 1st November. $420 million will be spent to bring down mortgages to a maximum of $50,000. The banks are expected to match the contribution by the state by together reducing mortgages to such a level that borrowers will be deterred from walking away.

As yet what the reaction of the banks would be remains an unknown factor. CalHFA however contends that its meetings with the banks have been positive. But nevertheless Paul Hudon a chairperson of CalHFA who is also the CEO of Broadway Federal Bank of Los Angeles aired his doubts as to whether the banks would positively respond to the requests of CalHFA. He quipped, “I’m not even sure banks are committed to a 50-50”.

CalHFA in defense of its programme said that this is best way to tempt banks to participate. Diane Richarddosn the project manager of CalHFA said, “Our goal is to push them as far as possible. But if we offer them 6 cents on the dollar and no lender participates, no borrower gets helped”.

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