Jose Vega was on the phone with JPMorgan Chase in April negotiating a loan modification when a real estate agent knocked on the front door of his Pittsburg house and said it had been repossessed in foreclosure a day earlier.
“I literally handed the phone to him and said, ‘Why don’t you tell this guy from Chase?’ ” Vega recalled. “It’s obvious the system is broken and needs to be fixed. The Chase executive handling my case didn’t know about the foreclosure.”
A proposed California law, SB1275, seeks to prevent similar situations by requiring lenders to give a decision on loan modifications before starting foreclosure proceedings.
A similar provision took effect Tuesday for banks complying with the federal Home Affordable Modification Plan, or HAMP, but the California law goes a step further by specifying that borrowers can sue lenders that foreclose in violation of the bill’s provisions, which also include detailed notification rules.
“Having a clearly defined consequence makes it more likely, we hope, that the servicers will avoid making the mistake in the first place,” said Paul Leonard, director of the California office for the Center for Responsible Lending. “Despite their best efforts, servicers continue to have capacity problems where the left hand doesn’t know what the right hand is doing.”
Beth Mills of the California Bankers Association said the industry opposes the bill because it addresses a moving target, HAMP.
“We think it would be a mistake for the state to codify HAMP when this is a program that has evolved and changed dramatically since it was first announced,” she said. “A couple of months from now, we could see new directives for HAMP.”
Banks against damages
Banks dislike the bill’s provision allowing borrowers to sue and receive up to $10,000 or treble damages.
“We’re extremely opposed to any sort of private right of action,” Mills said. “We feel even if minor technical violations may occur, it would be an avenue for borrowers to sue and further delay the foreclosure process even if they’re ineligible for a loan modification.”
State Sen. Mark Leno, D-San Francisco, who is the bill’s co-sponsor along with Senate President Pro Tem Darrell Steinberg, D-Sacramento, said the legislation is needed because HAMP doesn’t hold servicers accountable even when they act improperly.
“We know there will still be foreclosures, but we want to make sure there are no preventable foreclosures,” he said.
About 25 to 30 percent of loans are not subject to HAMP, so the bill would widen the pool of borrowers who might get assistance, Leno said.
The bill is expected to be heard in the Senate Banking Committee today to consider updates made to it when HAMP regulations changed. Under legislative rules, it must pass a Senate floor vote by Friday to stay in play.
Another foreclosure prevention bill, AB1639, passed the Assembly Appropriations Committee on Friday and is expected to be heard on the floor this week.
That bill would “establish a monitored mediation program to help homeowners and lenders reach sustainable loan modifications,” according to the office of Assemblyman Pedro Nava, D-Santa Barbara, who sponsored it along with Assembly Speaker Emeritus Karen Bass, D-Baldwin Vista (Los Angles County).