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Law changes mortgage rules

Decision by Legislature represents common-sense support for real estate, according to local experts

Posted: February 8, 2012 2:00 a.m.
Updated: February 8, 2012 2:00 a.m.

State Sen. Ellen Corbett, D-San Leandro, right, talks with Sen. Joe Simitian, D-Palo Alto, after the passage of her bill to extend assistance to homeowners struggling with foreclosure, at the Capitol in Sacramento on Monday.


In support of the real estate market, state senators voted Jan. 23 on a pair of bills that would offer protections to those hurt by the California mortgage crisis.

By Monday, one of those bills was withdrawn after a state agency reversed itself on an earlier policy, making the bill unnecessary.

CalFHA, the California Housing Finance Agency’s practice had been to foreclose on borrowers who rented out homes regardless of whether the owner was current on payments. Some 200 homeowners in the state were faced with possible foreclosure for renting homes on which the owners owed more than the property was worth.

Known as the state’s affordable-housing bank, CalFHA believed it was required to foreclose if the property was no longer the borrower’s primary residence.

Responding with SB 447, Sen. Mark DeSaulnier, D-Concord, introduced the bill to prevent foreclosures and help property owners who found themselves in financial trouble because of circumstances, such as job loss or a growing family. State senators unanimously approved the bill.

“These CalHFA borrowers are not speculators and are not taking advantage of the system,” said DeSaulnier in a news release in late January. “They are upside-down and are simply trying to meet their obligation and avoid foreclosure.”

The practice of foreclosing on homeowners who are current with their mortgage payments was uncovered through an investigation by the Senate Office of Oversight and Outcomes. CalHFA’s policies were deemed excessively strict in a report titled “Good Deeds Punished: State Run Mortgage Lender Forecloses on Californians Current on Their Loans” last fall.  In some cases, (companies were)even foreclosing on borrowers who are willing and able to continue paying.”

“The bill is common sense,” said Richard Szerman of Silver Creek Realty in Santa Clarita. “It is not a financing agency’s (state-run, private, nonprofit or other) job to tell people where they can or cannot live. All the finance company need worry about is, ‘Is the bill paid or isn’t it? How best can we mitigate this if it is in default?’”

After questions were raised over CalFHA’s practices, CalFHA changed course Monday and agreed borrowers could rent out their properties as long they remain current on their mortgage payments and lived in the home for at least one year after obtaining the CalFHA mortgage. The revised policy is effective immediately.

DeSauliner announced Monday he was dropping his bill in light of CalFHA’s change in policy.

“This policy change recognizes that these homeowners are doing the right thing,” he said. “While they are upside down in their mortgage, they continue to make payments and are not walking away from their obligation.”

The second bill passed in late January included SB708, introduced by state Sen. Ellen Corbett, D-San Leandro. The bill extends a law passed in 2008 during the height of the mortgage crisis and precludes lenders from beginning a foreclosure until they have spent 30 days trying to work on other options with a delinquent homeowner.

The law was set to expire after this year, but the new bill extends the protections to homeowners through 2017. Corbett co-authored the original law.

The housing downturn has wreaked havoc on thousands of Californians, Corbett said. The bill also protects renters in homes about to be foreclosed upon by requiring lenders to give renters 60-day notices before evicting them.

“I think it is good that the banks exhaust every effort to help the homeowners in distress, whether it is a modification or short-sale,” said Erika Kauzlarich-Bird, SCV president of Southland Regional Association of Realtors and broker/owner of Triple D Realty in Santa Clarita. “This will in turn help out our market to stabilize.”



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