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Foreclosure bill orders lenders to talk to borrowers
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More from Local NewsSACRAMENTO — Gov. Arnold Schwarzenegger indicated he will sign an urgency bill sent to him by lawmakers Wednesday that will require lenders to talk personally with homeowners before taking the first formal step toward foreclosing on a home.
The action comes after a report that foreclosures rose by 48 percent in May over a year ago and news that 1 in 183 California homes received a foreclosure notice during the month.
The legislation, SB1137, would give lenders or their agents 60 days to begin following the new procedure, which would require them to speak to borrowers either in person or by telephone to discuss options to avoid foreclosure. Currently, lenders only need send a notice of default in the mail to start the foreclosure process.
Last fall, Schwarzenegger reached a voluntary agreement with a number of lenders to take such steps, and on Wednesday, the governor's Department of Corporations reported a slight uptick in the number of forbearance plans that are being negotiated this year.
Schwarzenegger said the legislation "provides one more tool by giving borrowers the critical time needed before a foreclosure begins to work with their lenders and stay in their homes."
The bill also requires lenders to give advance notice to renters living in homes about to be foreclosed upon and gives cities greater code enforcement authority over foreclosed properties in an attempt to keep them from becoming neighborhood eyesores.
The California Association of Mortgage Bankers did not oppose the bill, and a representative joined Senate President Pro Tem Don Perata, D-Oakland, and Assembly Speaker Karen Bass, D-Los Angeles, at a news conference to herald its passage.
Consumer groups actively backed the plan.
"We're on pace in California for 150,000 foreclosures in the next 12 months," said Paul Leonard, state director of the Center for Responsible Lending. "We hope this legislation will put a brake on those numbers."
Under the procedures that will take effect once the bill is signed into law, lenders or their agents may not file a notice of default until 30 days after contacting a borrower or making a good-faith effort to do so. Additionally, lenders or their agents must grant a second meeting within 14 days if the borrower requests one.
A memo produced by the Department of Corporations and released by the governor's office shows the number of negotiated agreements to avoid foreclosure rose by 32 percent between January and May, although the actual number remains small in comparison with the number of foreclosures.
Also Wednesday, a consumer group released a survey of mortgage counseling agencies that suggests little true negotiation is taking place between lenders and homeowners. The survey, conducted by the California Reinvestment Coalition, suggests that borrowers are getting little help.
Less than one-fourth of the counselors surveyed said loan modifications were common, and about two-thirds reported that the most common outcome for their clients has been to lose their homes.
"With little accountability, obligation or oversight, home loan servicers are not doing enough to keep borrowers in their homes," spokesman Kevin Stein said.
The survey was released in Stockton, the foreclosure capital of the United States, with 1 in every 75 homeowners receiving foreclosure notices in May.
Even as leaders of the state Senate and Assembly praised the passage of SB1137, tension remains among legislative leaders over what steps to take to regulate subprime mortgages in the future.
A package of Assembly-backed bills that would have, among other things, prohibited prepayment penalties in subprime mortgages died in a Senate committee earlier this month — an action that sparked retaliation in the Assembly against bills written by the chairman of the Senate committee.
Perata said leaders of the two houses have subsequently held eight hours of meetings. "We're very confident we are moving toward resolution," he said.
The lending regulation bills are a high priority of Assembly leaders.
Bass said the regulations are needed because "too many people were asleep at the switch" in the months leading to the subprime mortgage meltdown. "We expect to see many more pieces of legislation in the next two months to come forward to take a more comprehensive view," she said.
The notification bill received bipartisan support in both houses of the Legislature, with a handful of Republicans joining majority Democrats to give the measure the two-thirds majority it needed so it can take effect immediately.
Among Ventura County's legislative delegation, the votes were split along partisan lines, with the three Democrats voting in favor and the four Republicans voting against.
Posted by windeecity on July 3, 2008 at 10:32 a.m. (Suggest removal)
This is waaay too late for many homeowners and besides, what good will this do?
Posted by Ventura22 on July 3, 2008 at 11:20 a.m. (Suggest removal)
The lenders will end-up like Countrywide if they continue their course of actions.
Posted by tweetybyrdrt on July 3, 2008 at 11:51 a.m. (Suggest removal)
it is not the responsibility of the lender to "work with" the delinquent homeowners. It is the responsibility of the homeowner to Honor the commitment to pay that they signed. it was the greed of the homebuyer/homeowner/seller that made this all happen, with the keep up with the Jones' attitude. Sell the Escalade, the big screen TV and the Harley. LIVE WITHIN YOUR MEANS. and the problem is over.
Posted by rebel123 on July 3, 2008 at 12:52 p.m. (Suggest removal)
tweetybyrdrt: yours is a very simplistic view of the problem. Ten years ago, there was no way in he!! this would have happened, because people who couldn't qualify for a loan didn't get a loan. Thousand of loans were offered up to people who simply didn't make enough to borrow. Given the complexity of any loan contract, it is not totally the buyers' fault that they got into loans that then re-pegged at crazy interest rates. Yes, they "should" know exactly what they are signing up for. Having said that, frequently with new homes, it is the sales office who ropes people into finance deals.....in other words a salesman who is making money off the house and likely something off the loan as well.....it's predatory lending and the lender bears responsibility as well as the buyer. Over all, Countrywide made millions off loans, their loan agents made significant commissions on these loans and you can't tell me they didn't try to push people into loans they knew full well were over the heads of the buyers.
Posted by Ventura22 on July 3, 2008 at 12:56 p.m. (Suggest removal)
The lenders were notorious for selling loans to people who they knew were out of their means, yet promised them that they really could afford it and made the deal "do-able" just to make the sale and immediate profits. That worked fine and well until the economy took a dump.
Lenders are just as greedy, if not more than homeowners. They were too liberal when times were much better and that helped pump-up the price of homes. Now a huge loan company has self-destructed and many people lost jobs. Nobody won there. It came full-circle and inevitably, the government is going to intervene now to clean-up the mess. I agree to an extent with tweety's opinion, but realistically, that approach will not fix the problem at this point. If more homes forclose, it will cause more damage to the economy and force other lenders out of business.
Posted by MyOpins on July 3, 2008 at 7:07 p.m. (Suggest removal)
Rebel123, you have a realistic view of the problem. To say, "you signed the doc, it's your responsibility" is a simplistic view. Life, our economy, market, and way of survival(life) is not so simple. I have a nice home, but certainly not something you would compare with the Jones.
In my situation, I needed something stable at the time and yes, it seem do-able at the time. Who knew the real estate market would take a dump. Big mistake and I take responsibility of not thinking clearly, therefore I try to live economically and put all earnings into my home.
My lender says I have to be in foreclosure in order for them to talk to me about refinancing-what the hell! I am responsible, my credit was in the high 800! I had a subprime loan with all sorts of clauses-should have hired a lawyer to read the fine prints. Pay below interest, but interest amount you can't afford to pay gets added to the principal.
Long story short, I asked the bank to forgive the prepayment penalty, but not the increased in principal(because it was the larger amount-"responsibility" I thought) and let me refinance to an interest only for 5, 7, or 10 years. This would have been stretching it for me, but do-able. I would have been able to refinance with the accrued interest, but not with the prepayment penalties plus closing costs. So no, the banks DO NOT work with borrowers.
Here's how they are "helping", they offered to refinance for a small fee to a fixed rate (which was not the lowest in the market) for ONE year, but they have to add one more year to the prepayment penalty time frame. This is so they can say they are doing something, but keep it from being affordable for me to get out and keep me locked in. It's that or loose my home. They won't work with you until they've ruined your credit then they will think about it.
Yes "...it's predatory lending and the lender bears responsibility as well as the buyer." I thought I was taking responsibility to claim one of the scam I bought into. There should be legislative action about this predatory lending business.
Posted by tweetybyrdrt on July 8, 2008 at 11:51 a.m. (Suggest removal)
I could have bought a home here a few years ago, I was offered a loan more times than I can count. BUT, I knew that the market could not keep going up forever, the lenders telling me I could re-fi later sounded good but I knew that when the market started going down it would be reaaly hard. so I looked at the highest possible intrest rate, highest possible payment due... so I rented until I could be sure that I was not just making ends meet but have a little overlap. I now own my own New home here in Ventura County. I know what my payments will be next year, the next and so on. I'm no economics major (or english major as you can tell by my writing) but a mere High school Grad, 20 year retired military, who knows his limits.
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