California’s attorney general asked 10 leading mortgage lenders to detail their plans for modifying option adjustable-rate mortgages (ARMs), warning that the state will be the epicenter for a new wave of foreclosures as these loans reset in the coming years.

“Homeowners with pay option ARMs are sitting on ticking time bombs that the lending industry has the power to defuse,” Attorney General Jerry Brown said. “Unless these banks and loan servicers act quickly, hundreds of thousands of mortgages will reset across the state, creating a new wave of foreclosures.”

In the third quarter, California accounted for more than 25 percent of the nation’s foreclosure activity, with 250,000 homes receiving foreclosure filings statewide.

California homeowners hold 58 percent of the country’s option ARMs originated between 2004 and 2008, Brown said. Approximately one million of these mortgages will reset nationwide in the next four years, resulting in higher payments and a dramatic increase in foreclosures, he said.

Brown asked the 10 lenders – including units of Bank of America, Wells Fargo, JP Morgan Chase, and Goldman Sachs – to submit their plans by November 23.

Brown asked the lenders for the following information:

• The number of option ARM loans in California that they are servicing.

• Of those, how many have experienced negative amortization and the average dollar amount of that negative amortization.
• A detailed explanation of all efforts taken to handle customer service concerns, including any increased staffing and a description of any notices to borrowers whose loans are about to reset.

• A detailed explanation of the loan modification plans developed for option ARM loans, including circumstances allowing for the reduction of principal, and the possible amounts of principal reduction.

• If the plans for modifying option ARM loans have changed since the beginning of the foreclosure crisis, an explanation of the changes and the reasons for those changes.

Brown, a former governor and presidential candidate who may run for governor again next year, made his request was made in a letter sent to Bank of America Home Loans & Insurance; Wells Fargo & Company; JP Morgan Chase & Co.; Goldman Sachs’ Litton Loan Servicing; “GMAC’s ResCap, LLC”:https://www.rescapholdings.com/; “Ocwen Financial Corporation”:http://www.ocwen.com; “OneWest Bank”:http://www.owb.com/, formerly IndyMac Federal Bank; “American Home Mortgage Servicing”:https://ahmsi3.com/servicing/home.asp; “Saxon Mortgage Services, Inc.”:https://www.saxononline.com/common/home/; and “Select Portfolio Servicing”:https://www.spservicing.com/.