I heard a perspective today about what government could/should do to deal with this subprime mess that I’d not run across before.

It was from Paul Leonard, the California director for the Center for Responsible Lending. He spoke at a meeting at City Hall today, to an audience of a few government officials and a couple dozen housing advocates, about the mess this region — and the entire state — is in over defaulting mortgages.

(I’ve spoken with Leonard quite a bit for some of my coverage of the issue. It was his organization, for example, that said we’re headed for a net loss of homeownership before this whole subprime thing is over.)

Anyway, here’s the point. A few weeks ago, I threw out a question to you about your thoughts on governments providing financial assistance for people who are stuck in resetting, ballooning mortgages. You were quite adamant: government money should not go to bail out distressed homeowners.

With all of the time recently Leonard and his colleagues have spent speaking to lawmakers, he said he’s stunned at how muted the response has been from California legislators. Most likely, he imagined, they’re averse to the financial bail-out idea and don’t know where else to turn. Besides, he added, the state and the federal government don’t necessarily bear fiscal responsibility for individual consumers’ decisions.

But the City-County Reinvestment Task Force, which was meeting today, wants to make some specific legislative recommendations (via the city) to state lawmakers. The problem is, task force members don’t know exactly what to recommend to curb the problem.

Here’s Leonard’s take: Put pressure on state lawmakers to regulate the lending industry more strictly. The lawmakers could place more requirements on lenders to extend the payback terms of the risky, high-cost loans to ease the burden on the homeowners. In other industries, Leonard said, the “kickbacks” lenders and brokers get for signing people up for the risky products would be “outrageous and illegal.” That’s the kind of regulation he thinks the government agencies should be passing, not necessarily the financial aid.

Until now in California, the market has been self-correcting after the crash in the subprime sector earlier this year — lenders have been tightening the standards themselves in response to pressure from their backers. Leonard said the government should be leaning on the lenders even more to do more to curtail the deluge of foreclosures across the state.


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