Gardena City Officials Considering Bankruptcy

A venture in the insurance industry proved to be costly for the city of Gardena.

Banks could slap Gardena this week with stiff penalties for failing to pay $26 million in debt.

Most of the long-overdue bill, which equals to more than three-fourths of the annual municipal budget, goes back to a a move that the city made more than a decade ago: to start Municipal Mutual Insurance Co. despite repeated warnings of financial risk.

The for-profit company is now under state supervision. To stay afloat, city officials are considering declaring bankruptcy, raising taxes or even closing a city department.

Meanwhile, residents and businesses in Gardena are suffering.

Money is scarce to repair streets and sewer lines. The municipal pool, parkland and police station may be handed over to creditors, though some officials don't think so.

It's unclear whether the banks -- Japanese-owned Sumitomo Trust & Banking Co., which holds most of the debt at $19.6 million, and Union Bank of California -- will go to court to extract higher payments, which could cost an extra $1 million a year.

A study by Fitch Ratings found that recently across the nation, municipal entities have defaulted on bonds issued to support atypical ventures such as golf courses and marinas.

Neighboring Orange County suffered default following losses in a high-risk investment pool.

Back in 1993 when Municipal Mutual was founded, Gardena officials were convinced that a homegrown insurance company could provide coverage for Gardena while earning millions of dollars through policies sold to other cities.

No one has been charged in connection with Municipal Mutual's failure.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.