From Alejandro Lazo at the latimes.com:
A proposed law facing a key vote in Sacramento on Wednesday would require lenders in California to make a decision on mortgage modifications for delinquent homeowners before beginning the repossession process, in effect ending “dual track” foreclosures in the state.
Financial institutions commonly pursue foreclosure even if a borrower has requested a loan modification, a two-track process the lending industry has argued is necessary to protect its investments. But dual tracking is under fire from regulators and lawmakers in the wake of last year’s “robo-signing” scandal, which revealed widespread foreclosure errors.
The California Homeowner Protection Act, authored by state Senate President Pro Tem Darrell Steinberg (D-Sacramento) and Sen. Mark Leno (D-San Francisco), is one of the furthest-reaching efforts to limit the practice. Several other states have passed requirements for third-party groups to oversee mediations between mortgage servicers and homeowners.
The California bill, SB 729, would require a lender to fully evaluate a borrower for a loan modification before filing a notice of default, the first stage in the formal repossession process, and a significant change in the way foreclosures are conducted in the Golden State.
The law would give delinquent homeowners the right to sue their lenders to stop foreclosures if they believe the requirement to properly evaluate their loan modification requests had not been followed. If the sale occurs without the proper evaluation, homeowners would also be given the right to sue for damages or to void a foreclosure sale for up to a year after the sale.
Such a change is necessary in the state because the two-track process often leads to unintended foreclosures by mortgage servicers that “don’t know what they are doing” and often bungle the loan modification process, Leno said in an interview.
“We know of folks not only entering the loan modification process, but folks who have already been accepted, and are making timely loan modification payments, and then getting a knock on their door and being told ‘your home will be sold,'” Leno said. “The stories are many and horrifying.”
Groups representing lenders said the legislation overreaches and would only inhibit the state housing market’s recovery by slowing down an already drawn out foreclosure timeline. California’s comparatively streamlined foreclosure system, which allows for a home to be taken back without a court order, has helped the state work through a foreclosure glut relatively quickly and recover faster than other hard-hit states.
“It is just not good for the housing market, which is not good for the state economy, especially when we are at 12% unemployment,” said Dustin Hobbs, a spokesman for the California Mortgage Bankers Assn. “It is a reaction, an overreaction, to procedural mistakes,” he continued, “and this doesn’t really get at solving any of those problems.”
The bill also would make it more difficult for investors to purchase, renovate and resell bank-owned properties to first-time buyers because it gives foreclosed-on homeowners a year to sue after a foreclosure sale, critics said. Home buying by investors has been a significant driver of California home sales since the housing market hit bottom two years ago.
“It’s unlikely that any prospective home buyer would want to buy these properties with that lingering uncertainty hanging over their heads,” said Beth Mills, a spokeswoman for the California Bankers Assn. The bill also would require mortgage servicers to:
• Prove they have a right to foreclose;
• Adhere to new timelines when evaluating borrowers for possible loan modifications;
• Provide an explanation letter detailing why a mortgage modification was not granted if a borrower is denied;
• Make a declaration of compliance with the law each time a notice of default is filed.
The bill also would allow a state banking regulator or the state attorney general to take action against lenders if the law isn’t followed.
Major mortgage servicers are under increased scrutiny since it was revealed last year that they employed so-called robo-signers. These bank employees signed off on legal documents needed in foreclosure cases without reading them or, in several cases, understanding what they were signing.
There were widespread complaints of botched loan modifications that left delinquent borrowers worse off, and foreclosures made without documentation of who owned loans that had been sold and resold in the secondary market where mortgage securities are created and traded. Mortgage servicing operations were shown to be understaffed and employees were poorly trained.
In response, federal regulators this month ordered the nation’s biggest banks to overhaul their procedures and compensate borrowers hurt financially by wrongdoing or negligence. The agreement between the regulators and banks requires mortgage servicers to stop foreclosure once a homeowner is approved for a temporary mortgage modification.
But consumer advocates criticized those orders as watered down and not going far enough. A wider-ranging investigation conducted by a coalition of state attorneys general and other federal agencies is continuing.
Consumer advocates and lawmakers are hoping that the California bill will have momentum following revelations of the foreclosure paperwork debacle. The proposed law is similar to a bill that passed the state Senate last year but was defeated in the Assembly.
The bill faces a hearing and vote in the state Senate’s Banking and Financial Institutions Committee on Wednesday. The committee is headed by Sen. Juan Vargas (D-San Diego), who isn’t completely sold on the legislation, said his chief of staff, Jim Anderson.
“My understanding is that Sen. Vargas has some concerns with the bill, but prefers to ask questions of the author and discuss the bill in the public hearing tomorrow before making his final decision,” Anderson said. Vargas wasn’t available for comment Tuesday.
The bill has been endorsed by a slew of consumer advocacy groups including the Center for Responsible Lending. Many of these groups have slammed federal banking regulators, saying they failed to stop unsafe lending during the housing boom and preempted state attempts to rein in predatory lending.
If this proposed law goes through, at least we’ll know if people are on the NOD list, they are done with the loan mod portion, and are on their way out.
The lenders will add a hold harmless clause to the cash-for-keys component to avoid the one-year delay.
Not sure if the former owners will insist on more-cash-for-keys, they already get too much. But they might get more.
It appears the loan mod used to be a privilege but now CA legislature wants to make it a right for the borrowers. The burden of justifying a mod denial is sqarely on the lenders who will face being sued for the lack of it.
I suspect the risk of foreclosure sales being voided up to a year may be the greatest for the courthouse step auctions and not so much for the REOs. I could be wrong.
The theory behind California property law is you want the property to be useful and productive. This law will do the exact opposite.
I wish we could just prosecute banks and executives on the existing fraud type laws. We don’t really need a new Loan Mod law we just need to use the fraud laws we already have to convict the banks in the most extreme cases. Of course this law will probably have some kind of small fine and therefore we can slap a couple million of fines on the banks when we should be locking up the executives.
We’ve certainly learned over the past 3-4 years that the government is only capable of prolonging the problem. They certainly haven’t done anything to fix it and these programs just put the end further out in the distance.
livinincali,
Totally agree. I think something like this is needed, but it wouldn’t be necessary if the govt. went after the players who engaged in some of the most epic, out there in the open fraud ever seen. Hardly anyone of consequence has been indicted, much less gone to prison. ALL of the biggies at the top are still out here; many are cooking up schemes for the next round of guess who will come out on top.
People keep saying we need less regulation, but all that’s got us is a far more chaotic economy. It was the more or less unregulated, chaotic environment of the late 1800’s (1870’s to 1900) that led to the creation of the Federal Reserve Bank (and spurred a healthy dose of trust busting by Teddy Roosevelt).
Regulation without enforcement is a farce. That’s where we stand now. Mostly criminals are running the finance show and the sheriffs are standing on the side lines watching the action along with the rest of us.
Welcome to 1880.
“Regulation without enforcement is a farce. That’s where we stand now. Mostly criminals are running the finance show and the sheriffs are standing on the side lines watching the action along with the rest of us.”
Exactly. Regulation without enforcement is worthless. Why write more regulation if you can’t even enforce the existing regulations. Only thing I can think of is make the penalties less strict on the new regulations and then convict on those weaker penalties to satisfy the public. It’s a joke.
Re #6 if you read Last Call about Prohibition you find that the same occured then, selective enforcement at best. The dirty little secret then and now is we would have to hire a lot of judges and US attorneys to prosecute all the bad guys. From the prohibition time frame, the Volstead act gave everyone a jury trial that we would have had to add 10 to 100x the federal courts we had back then to fully enforce it. Likewise if we were to go after everyone in todays crisis, we would have to spend a lot more, and thats not possible. (Plus the jails are full already)
The banks can’t have it both ways. I think everybody would agree that it is insane to only approach a lender for loan modification if you stop paying your mortgage.
I bet many people would rather try the loan mod, then weigh the options, and then decide whether to stay or go.
Giving clarity to the market, and as JtR points out, will stop the guessing game of “is it a real NOD or loan mod?” I hope the law passes.
This bill is much more complicated for servicers to comply with than the last legislation passed in California requiring the servicer to wait on filing a NOD until 30 days after satisfying due diligence communication requirements and certifiying it when filing the NOD.
That act created a pretty long defacto foreclosure moratorium while servicers tried to figure it out. This one would likely create an even longer moratorium, and I am not sure the servicers would be able to figure it out until it expires on 1/1/13. I can picture B of A waiting until then on its foreclosures.
On the cash for keys issue JTR, it looks like minumum statutory damages for foreclosing without compliance is $15,000 plus attorneys fees and costs. If there are actual damages, they are trebled. So It would seem that the price of cash for keys would be going up.
The private right of action for money damages component of this bill is something that prior California legislation has lacked.
#1. “If this proposed law goes through, at least we’ll know if people are on the NOD list, they are done with the loan mod portion, and are on their way out.”
Not necessarily. From the act:
“2923.7 (c)(1) If a borrower requests a loan modification, either orally or in writing, within 15 days after receiving the statutorily required copy of the notice of default by certified mail, and submits a complete loan modification application by the later of either (A) 15 days after receiving application instructions from the mortgage
servicer, or (B) any application deadline communicated in writing by the mortgage servicer, the mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of sale until at least 10 business days after it has, in good faith, reviewed the application, rendered a decision on the application, and sent the borrower a denial explanation letter as described in Section
2923.73”
Kingside- maybe my legaleeze is slow this time of day but doesn’t that section still references a NOD?
That’s my point, people should get a chance to request a loan mod without necessarily triggering a NOD by going 60-90 days late on payments.
It is a fairly long bill, the provisions are not yet law and remain to be negotiated, and yes, the intent is to try to get a decision on a loan mod made before a NOD gets recorded.
But there is at least one provision presently in the bill that appears to give a borrower under certain circumstances the right to request and have considered a loan mod after the NOD has been sent. That was my only point.
Anything sponsored by Steinberg and Leno has to be questioned. They have a habit of doing more harm than good.
Looks like this bill didn’t make it out of committee.
http://www.mortgageorb.com/e107_plugins/content/content.php?content.8482
I’m waiting for the “cash-for-paying-your-mortgage” program.
Jim…
Your a cause to the problem the entitlement generation.
I see where you and your client (the lender) gave away $5900+ in a
cash for keys to someone that had already sucked
the property dry!
Stop that practice and maybe these losers will get the message.
No free rides That would never have happened pre 1965
Hilton
#16….please relax.
Cash for keys is given when the property is not trashed. That is is the reason for Cash for keys. To get the “nothing left to lose”..ers off the premises without their stealing the appliances. In the case you’re referring to the folks left and the property was not trashed. Successful execution of Cash for keys.
Is it extortion…well yeah. But is it the root of all current evil that you imply…um NO.
Pre 1965 no bank issues a liars loan to a citizen period.