July 3, 2008
Legislation that would reform the foreclosure process in California for the benefit of homeowners trying to hold on to their homes passed the Assembly with bi-partisan support and the two-thirds majority required for it to pass.
“This bill is an important step toward providing relief to borrowers in trouble right now, renters and communities facing increasing blight as a result of foreclosures,” said Paul Leonard, director of the California office of the Center for Responsible Lending. “But the next order of business should to be to restore the Assembly legislation that would also protect borrowers in the future.”
SB 1137, sponsored by Sens. Don Perata (D-Oakland), Ellen Corbett (D-San Leandro) and Michael Machado (D-Linden) goes beyond federal laws and received broad support from consumer groups. The legislation requires lenders and servicers to: 1) contact borrowers (or engage in a prescribed process to do so) to schedule telephone or in-person meetings on restructuring options before beginning the foreclosure process, 2) requires a 60-day notice to be given to tenants of buildings facing foreclosure before they can be removed from a rental housing unit; and 3) allows fines of up to $1,000 a day for owners of foreclosed properties that fail to adequately maintain them.
The legislation will take effect immediately if signed by Gov. Schwarzenegger, though the provision requiring servicers to contact borrowers before starting the foreclosure process will have a 60-day implementation period before it goes into effect.
“This bill provides much needed assistance to suffering families across California struggling to stay in their homes and helps tenants that are living in properties in foreclosure who are in danger of losing a place to live without notice,” said Ronald Coleman, policy director for California ACORN.
“Opening communication between lenders and borrowers is important, but a truly preventative reform package is needed to keep the bad loans from being made in the first place,” added Pedro Morillas, legislative advocate for CalPIRG.
The bill’s passage comes on the heels of the California Attorney General’s lawsuit alleging unfair and deceptive practices on the part of Countrywide Financial, a leading lender in the subprime market.
“SB1137 will help stem the foreclosure tide in California,” said Kevin Stein, associate director of California Reinvestment Coalition. “At the same time, Attorney General Brown’s lawsuit against Countrywide underscores the need for the legislature to also put in place strong consumer protections to ban the kinds of abusive practices engaged in by Countrywide and other lenders, which have harmed so many families and fueled the current crisis.”
Earlier this session, the Assembly passed a number of bills that would have reined in abuses in the subprime market, including that would have limited prepayment penalties; required lenders to evaluate a borrower’s ability to repay; established mortgage brokers’ fiduciary duty to borrowers; regulated mortgage servicers; required lenders to provide translated summary of loan terms to non-English speaking borrowers and prohibited involuntary waivers of legal protections.
One week ago, the Senate Banking Committee gutted or killed all but one of those mortgage-related bills, with only AB 529 from Assemblymember Alberto Torrico (D-Fremont) making it out in its original form; his bill would require lenders to provide notice to borrowers regarding interest rate resets. AB 1830, sponsored by Assemblymember Ted Lieu (D-Torrance) and originally named the Subprime Lending Reform Act, was completely gutted and in its current version merely directs California legislators to enforce weak federal laws.
“By creating sensible stop-gap protections for borrowers before they lose their homes, SB 1137 will help preserve homeownership by preventing unnecessary home foreclosures from occurring,” said Norma P. Garcia, senior attorney for Consumers Union, the non profit publisher of Consumer Reports. “This is absolutely critical to help stem California’s avalanche of foreclosures, but we also need stronger laws to protect against future mortgage meltdowns because our economy cannot afford to walk down this road again.”