By Gary Walker

California, along with Florida and Nevada, has been hit the hardest by foreclosures since the financial crisis swept the national landscape like a raging brushfire. And now the rate of foreclosures and the manner in which banks have initiated them are moving toward the center of a brewing political storm that is beginning to take shape as a campaign issue in state and national politics.

In a national television interview Oct. 13, Rep. Maxine Waters (D-Westchester) called for a halt of foreclosures in all 50 states. She also discussed pending legislation she has proposed to help resolve the ongoing housing concerns.

Waters introduced the Foreclosure Prevention and Sound Mortgage Servicing Act, which prohibits a bank from initiating foreclosure proceedings without offering the homeowner loss mitigation.

“With tens of thousands of foreclosures occurring in violation of standard procedures and possibly even illegally, and many American families wrongly losing their homes as a result, a nationwide suspension of all foreclosures is now urgently needed,”  said Waters, who chairs the Housing and Community Opportunity Subcommittee.

One of Culver City’s state representatives supports the congresswoman’s call for a nationwide moratorium on residential bankruptcies. “I have joined Rep. Maxine Waters and a growing number of politicians and advocacy organizations to call on banks to put a temporary suspension on further foreclosures,” state Sen. Curren Price (D-Culver City) said on Oct. 26.

Homeowners are faced with another wave of foreclosures with an estimated 3 million more homes to be seized in the next three years, according to RealtyTrac, a real-estate-research firm. In September alone, there were more than 100,000 foreclosures.

Bank of America announced last week that it will resume foreclosure procedures on more than 100,000 mortgages by next week in the 23 states where court approval for insolvencies is required amid revelations that their employees had signed and filed thousands of affidavits in order to foreclose on properties without appropriate review. GMAC Mortgage has also announced an end to its freeze on foreclosures.

“A moratorium is still needed to give some borrowers a chance to get loans modified and make sure homes are not being seized through fraud,” Price added. “These banks need to evaluate the facts in all of these foreclosure cases because there is sufficient evidence that homeowners have been harmed by wrongful foreclosures.”

Culver City Realtor Rich Kissel believes that the pending federal legislation could have adverse affects on the housing market. “One of the problems of a [nationwide moratorium] is it could back up [the number of homes] in the system and that could prolong the agony,” Kissel said. “I think it would be better for the market if foreclosures were released on an ongoing basis.”

Waters rejected the notion that a moratorium on foreclosures would delay an economic recovery. “I don’t feel comfortable with them saying, ‘If you straighten this out, it will disadvantage me,’” the congresswoman countered, referring to bankers and others in the financial services sector. “I don’t think that’s a good argument.

“This crisis was created by the financial services industry and was a very destructive element to our society and a primary cause of the economic recession,” Waters continued. “And now there has to be a combination of mandatory loan modification and loss mitigation for homeowners.”

Assembly Speaker Emeritus Karen Bass (D-Culver City), who is seeking to replace retiring Rep. Diane Watson, feels that Waters’ idea merits consideration.

“There needs to be an aggressive push to get banks to really take a look at loan modifications,” said Bass. “All options need to be put on the table.”

Kissel said a federal moratorium on foreclosures might unduly influence home prices after they are reintroduced into the market. “The fear is that when they’re finally released, there will be a backlog of inventory and that could drive prices down further than they already are,” he explained.

Asked if that would be advantageous to potential homebuyers, Kissel agreed that it would be, but said it would not be good for the overall housing market. “It could be good news for someone who is looking to buy a home,” he conceded. “But not for someone who has lost their job and might be looking to sell. Their home might not be worth as much if prices are driven down.”

While the Westside has not been hit as hard as other areas of the Los Angeles region, Kissel said there have been some foreclosures in Culver City.

Mike Cohen, who has been selling residential real estate in Culver City for several years, sees both sides of the equations. “I inderstand that if you bring a halt to the natural process of the market it could cause a loss of equilibrium,” Cohen said. “But if there are foreclosures that have been approved illegally or unethically, then it’s government’s job to intervene.”

Price said a temporary stoppage would work in favor of homeowners who are in danger of losing their residences.

“A moratorium would keep people in their homes and give banks an incentive to work things out with the homeowner,” he said. “ I agree with [Waters] that foreclosure should be the last resort.”

Other state legislators are also in favor of the moratorium.

“Major mortgage lenders have admitted their executives signed and certified foreclosure documents with no knowledge of what was actually in the documents,” state Assemblyman Ted Lieu (D-Marina del Rey) said. “They should be commended for taking these voluntary actions.

“However, these lenders, as well as other major lenders, should institute a foreclosure moratorium in California, which is one of the nation’s hardest hit states in sheer numbers of foreclosures.”

Lieu is the author of Assembly Bill 2325, which will force lenders to run a comprehensive loan modification program or face a 90-day foreclosure moratorium.

Cohen characterized foreclosures as “all part of the normal part of real estate. Sometime you need to have that shakeout.”

But the real estate professional stated that even if many lenders did nothing illegal, the number of people who have lost their residences has to be taken into account. “Even if things were done correctly, there are still human beings that we’re talking about,” Cohen noted. “I think a lot of the banks could negotiate a way for people to stay in their homes.”

Waters plans to convene a hearing of her subcommittee to further investigate the foreclosure crisis. The first hearing, tentatively scheduled for Nov. 18, will look into problems that have recently surfaced in the mortgage servicing industry, including improper and potentially illegal foreclosures.