Senate Bill 308 Would Help Homeowners to Keep Equity

In 2016, recent reports of job growth are encouraging to learn. Yet these and other economic measures have yet to lessen the economic anxiety faced by so many California families. Struggles to make financial ends meet are particularly prominent for people of color.

Part of this anxiety is generated by income inequality that filters through many regions of our state and our nation. Even before the foreclosure crisis, wide and deepening income gaps over several decades inhibited if not outright denied most people of color financial peace of mind.  When the housing crisis came, it only exacerbated the disparities, hitting millions of people even harder – job losses, deepening debt and elimination of home equity.

Persistent racial disparities permeate income inequality issues in nearly every personal hardship that emerges. These differences are so stark that they often trigger bankruptcy for families that have exhausted all other options.

Subprime mortgage loans, with their high fees and high interest rates, were disproportionally pushed by the banks and brokers to minority families. In fact, in a 2006 study by the Center for Responsible Lending (CRL), findings show that African American and Latino borrowers were more than 30 percent more likely to receive a higher-rate loan than white borrowers who were similarly situated. When the bottom fell out in the Great Recession, these racially discriminatory lending practices decimated minority families and communities just as initial strides were being made to close the wealth gaps.

Just as the predatory lending practices disproportionately saturated communities of color, so did the ensuing foreclosure crisis. In 2010, CRL research showed that in California, African American and Latino families were more likely to face foreclosure than white borrowers, and that over half of all foreclosures occurred in these communities. These lending consequences and persistent foreclosures locked many new potential homeowners out of the marketplace. Minority families and those in lower-income neighborhoods with hopes of becoming homeowners are now shut out.

Nowhere are these trends more evident than in California. Last week, CRL released a research report, “The Drought Continues−Mortgage credit runs dry for Californians of color,” that found  in California, African-American and Latino borrowers combined received only 25% of new home purchase loans, despite making up nearly 40% of the population.

That is why we are supporting SB 308 by California State Senator Bob Wieckowski (D-Fremont). The bill, which currently awaits a vote by members of the California Assembly, allows Californians to hold onto their homes and more of their home equity in the case they find themselves in bankruptcy. It does this by updating the amount of equity homeowners can protect from seizure by creditors. This update is necessary to better reflect the high cost of housing facing Californians. In this way, SB 308 helps people to move toward financial security.

Unless SB 308 is approved, the bankruptcy court can force the sale of a home and then seek any remaining equity if the homeowner is unable to reinvest in another property within six months. Purchasing a home within six months would be extremely difficult because of the bankruptcy on the borrower’s credit report and the cost of housing in California. Taking all of a family’s meager assets only increases the likelihood that they will be forced onto government assistance.

Seniors on a fixed income, who have spent decades paying down their mortgage and are now house rich but cash poor, should not lose their life’s nest egg. And others, who are dealing with serious health care issues, should be allowed to keep some equity to cover their unexpected medical bills.

SB 308 is a responsible step to make sure families in financial hardship have enough money to keep a roof over their heads and pay for essential services. It will help ensure families have a cleaner pathway to building assets, much of which were stripped away by unfair lending practices targeted at communities of color. This pathway is necessary in order to continue closing the expensive racial wealth gap.

Our organization has joined a broad coalition of supporters from throughout California, including elected officials such as Attorney General Kamala Harris, State Treasurer John Chiang, Senate Pro Tem Kevin de Leon and Assembly Speaker Anthony Rendon, backing this sensible legislation. The bill has passed the Senate and the Assembly will vote in August. We urge you to contact your Assembly member and ask them to support this bill.

Graciela Aponte-Diaz is Director of California Policy at the Center for Responsible Lending.

Cross post from the San Fernando Valley Sun