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Calif lawmakers prepare to advance mortgage bills

Posted: June 10, 2012 11:00 a.m.
Updated: June 10, 2012 11:00 a.m.

Attorney General Kamala Harris discusses her package of homeowner mortgage protection bills during a conference committee hearing at the Capitol in Sacramento.

 

SACRAMENTO, Calif. (AP) — Democrats in the California Legislature are preparing to advance bills in the coming days that are designed to limit the run-around some homeowners have experienced with lenders and to allow them to sue under some circumstances.

The legislation expands on a recent nationwide bank settlement over home foreclosures in one of the states hit hardest by the mortgage crisis.

Sen. Noreen Evans, chairwoman of a conference committee crafting the legislation, said she hopes to have the bills ready this week so they can be considered by the Legislature before lawmakers leave for a monthlong July recess. Lawmakers are negotiating the mortgage legislation this week as they race a Friday deadline to approve a budget for the fiscal year that starts July 1.

Opponents are most concerned that letting borrowers sue bankers could delay legitimate foreclosures and further slow the housing market recovery in California.

"That is proving the sticking point," said Evans, D-Santa Rosa. "How do we make sure that people have real rights and yet don't overload the courts with frivolous lawsuits?"

The package also would require lenders to provide a single point of contact for borrowers who want to discuss foreclosures or refinancing, and ban what are known as "dual-track foreclosures" by barring lenders from filing notices of default while they are also considering alternatives to foreclosures.

"The goal that we are all trying to achieve is keeping borrowers who can afford to do so in their homes," Evans said.

Democrats who control both the Assembly and Senate are writing the bills without consulting minority Republicans. But they are negotiating with business-friendly Democrats, aides to Democratic Gov. Jerry Brown, and the mortgage industry, along with consumer organizations that have been pushing for restrictions so strong that the California Bankers Association warned they would create "a de facto moratorium on foreclosures."

The legislation would let homeowners go to court if they feel their rights have been violated by lenders. Opponents say that would push California closer to 20 other states that require judges to approve foreclosures, drawing out the time it takes to complete the process.

They cite a study for the Federal Reserve Bank published in December that concluded involving the courts delayed but did not prevent foreclosures.

It took an average 320 days to complete a foreclosure in California, according to the foreclosure listing firm RealtyTrac's April report for the first quarter of 2012. Several judicial process states took years to approve foreclosures, on average: 861 days in Florida, 966 days in New Jersey and 1,056 days in New York, the nation's longest delay.

"We don't want the foreclosure process to be so burdensome that it affects the future of the mortgage market," said California Bankers Association spokeswoman Beth Mills. The cost for mortgages could rise if lenders have to factor in delays, lawsuits and damage awards, she said.

Evans calls that fear nonsense because simple foreclosures could still take place without going to court as long as mortgage companies have done everything as required by state law and the national banking settlement.

The California legislation will mirror the federal settlement by giving lenders time to correct problems on their own before borrowers could file lawsuits or regulators could impose penalties, Evans said. Delinquent borrowers would also be limited to one legal challenge unless they can show a substantial positive change such as an improvement in their financial condition so they can afford to make their mortgage payments.

Sen. Sam Blakeslee, R-San Luis Obispo, a minority member of Evans' committee, objected that Republicans have not been included in negotiations and no public hearings have been held on the most crucial part of the pending legislation. He said an early draft of the proposed legislation did not include the limits on lawsuits that Evans described.

"The core issue is whether or not the remedies for problems include a financial windfall for trial attorneys who create cottage industries launching frivolous lawsuits," Blakeslee said.

Consumer groups and labor unions are heavily lobbying legislators to approve the homeowner protections sought by Attorney General Kamala Harris, who helped negotiate the February settlement with the nation's top five banks that will bring $18 billion in relief to California. The bulk of the national settlement money is intended to help homeowners reduce mortgage payments and aid borrowers who were harmed by unfair lending practices.

"Whose Side Are You On: Banks or Homeowners?" the consumer groups said in letters to state lawmakers last week. They cite statistics that nearly 2 million state residents have lost their homes since 2008, while more than 2 million Californians owe more than their homes are now worth.

Previous efforts to increase homeowner protections have fizzled, but proponents say they have a better chance this year because California is following the national settlement. However, the most contentious provisions in Harris' proposal stalled in legislative committees, forcing leaders to create a special conference committee to bypass the usual process.

Lawmakers have preliminarily approved other portions of what Harris, a fellow Democrat, is calling a "homeowner bill of rights." They include bills that would increase protections for tenants in homes facing foreclosures; penalize home buyers, investors and developers if they fail to clean up dilapidated homes quickly; and increase enforcement powers for the attorney general's office.

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