L.A. Lawmaker Threatens Banks Over Foreclosures (Huzzah!)

Los Angeles officials are weighing whether to withdraw all city deposits from financial institutions that fail to help struggling homeowners avoid foreclosure. City employee pension funds could also be encouraged to stop doing business with such lenders.

"During these times of the financial meltdown and the federal bailout of big banks, it is more important than ever that we ensure that our money is being invested in institutions that are investing back in our community -- not those that taking advantage of our residents and ripping off their clients," said L.A. council member Richard Alarcón, who is sponsoring the motion, in a statement on Tuesday.

For politicians, vilifying big banks is a popular sport these days -- and for good reason, since many institutions are behaving villainously and people are pissed. But Alarcón's proposal may be no idle threat. His spokeswoman told me by email that the motion stands a "very good" of being passed. The powerful Service Employees International Union, along with some local community banks and businesses, also support the proposal.

Losing city business would obviously be a big blow for major lenders in L.A., which include Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC). The spokeswoman said executives with these and other large banking companies operating in Southern California recently held a conference call with Alarcón aides to discuss his concerns. The full L.A. city council is scheduled to vote on the motion March 5.

Alarcón also wants L.A. to create a "report card" to evaluate lenders that do or are seeking business with the city. The document would include data on a bank's record in modifying mortgages and making loans to small businesses, among other things. Banks that didn't measure up could be shut out.

The good news for SoCal homeowners is that foreclosures may be on the decline in the region. Default notices in the San Fernando Valley in January fell four percent from the previous month, according to the Valley Economic Research Center at Cal State Northridge. Fewer people are defaulting on their mortgages, as well, which typically leads to a foreclosure.

Heartening. Still, at least part of that improvement is likely due to banks delaying foreclosing on a property, rather than to homeowners catching up on their mortgages. Huge numbers of people remain delinquent on their loans.

Is Alarcón out to score political points? What politician isn't? Still, huzzah to him for raising the heat on banks to work harder to stem a crisis they helped create.