June 26, 2012 > Calif. to act on mortgage protections
Calif. to act on mortgage protections
By Don Thompson, Associated Press
SACRAMENTO, Calif. (AP), Jun 22 - Democrats who control California's Legislature have come up with a new plan to regulate the state mortgage industry that gives homeowners more leverage against their lenders.
The draft legislation, provided Friday to The Associated Press, would bar banks from foreclosing on homes while loan modifications are pending, let homeowners sue mortgage providers who break state law and require lenders to provide a single point of contact to borrowers.
The plan is an extension of a national settlement that imposed new restrictions on the five largest U.S. banks. Under the bill, which a special legislative committee will consider next week, all California lenders that process more than 175 foreclosures per year would have to adhere to the new regulations.
Previous efforts to reform California's mortgage industry have stalled amid stiff opposition from banks and other lenders, and from Republicans and moderate Democrats who were concerned more sweeping restrictions might raise borrowing costs and further stall the recovery of the state housing market. The latest plan came after weeks of negotiations.
Sen. Ron Calderon, a moderate Democrat from Monterey Park who opposed the original legislation, now supports the compromise after helping negotiate key concessions. The changes include giving lenders the chance to fix problems before consumers can file lawsuits, limiting costly nuisance lawsuits, and exempting small lenders from some of the requirements.
``We focused mainly on two principles: fair treatment of borrowers and keeping California's economy on track,'' Calderon said. ``I think that we struck a very good balance.''
Beth Mills, spokeswoman for the California Bankers Association, said her organization was still reviewing the draft bill but initially believes it is still too broad and could allow frivolous lawsuits by borrowers who cannot afford to stay in their homes.
Dustin Hobbs, spokesman for the California Mortgage Bankers Association, said it was too early for his organization to take a position, but he criticized the committee for scheduling a vote next week before interest groups have had a chance to analyze the latest language.
Meanwhile, a coalition of homeowners, Occupy groups, unions and others announced they will rally Monday at the Capitol to push for a moratorium on all foreclosures, something that goes well beyond the legislative compromise.
The package would:
- Let homeowners sue mortgage providers if they violate state law, but only if there is a significant violation. Homeowners could ask judges to halt pending foreclosures but could collect monetary damages only if the foreclosure took place. Lenders would be liable for triple damages if they engage in willful, reckless or intentional violations.
- Give lenders a chance to fix problems with individual borrowers on their own before they can be penalized - a key demand by the banking industry.
- Require lenders to provide a single point of contact for borrowers who want to discuss foreclosures or refinancing, with an exemption for smaller lenders.
- Ban what are known as ``dual-track foreclosures'' by barring lenders from filing notices of default, notices of sale, or conducting trustees' sales while they are also considering alternatives to foreclosures like loan modifications or short sales.
- Increase penalties for banks that sign off on foreclosures without properly reviewing the documentation, a process known as robo-signing. But the $7,500 civil penalty would be limited to one for each loan - not one for each improperly filed document, as lenders had feared.
While some changes would be permanent, others such as the higher penalties for robo-signing would end after five years in deference to bankers' arguments that legislators were demanding a permanent solution to what lenders say were temporary excesses.
Consumer groups and labor unions have been heavily lobbying legislators to approve the homeowner protections sought by Attorney General Kamala Harris, a Democrat who helped negotiate the February settlement that requires banks to pay $18 billion in penalties to California homeowners. That settlement included Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. but excluded other lenders.
Harris said the new proposal would help borrowers stay in their homes if they can afford to do so.
The compromise was developed after initial versions of Harris' proposals foundered in regular committees. That forced legislative leaders to create a special conference committee to bypass normal procedures.
Democrats have large majorities in both chambers and can pass the bill without Republican votes, provided enough moderate Democrats will accept the compromise. A vote by the full Legislature is planned before lawmakers leave for a monthlong summer recess in early July.
Senate President Pro Tem Darrell Steinberg, D-Sacramento, has said passing mortgage reforms are key to Democrats' election strategy and are needed to help persuade voters to approve Gov. Jerry Brown's proposal in November to temporarily raise sales and income taxes to fund state programs.
Steinberg spokesman Mark Hedlund said Democrats are confident the revised bill can pass both the conference committee and the full Legislature.
``We found good middle ground on some of the issues that were sticking points for parties on both sides of the issue,'' Hedlund said.