The California Bankers Association Announces Positions on Several Mortgage-Related Legislative Measures – UPDATED
Association supports aspects of the California Attorney General’s Homeowner's Bill of Rights
SACRAMENTO – Today the California Bankers Association (CBA) announced its position on several mortgage-related measures introduced this legislative year, including those contained in the California Attorney General’s Homeowner’s Bill of Rights.
During the past several years there have been historic efforts by the government, financial services industry and consumer groups to help millions of borrowers stay in their homes. In California, the CBA has worked with the Legislature to enact no fewer than four dozen mortgage-related bills that address everything from loan origination to post-foreclosure practices. This year, there are again several dozen proposed legislative measures focusing on many of these same areas. In many cases, measures before the Legislature are duplicative, overlap, conflict and compete with others by amending similar or the same code sections.
We continue to be concerned with legislation that results in the further erosion of property taxes for local governments, perpetuates community blight for longer periods, acts as disincentives for capital investments and forestalls economic recovery. Should state laws with respect to loan origination and collateral recovery become too onerous private capital will be reluctant to invest, or will only invest at a significant risk-based premium, resulting in higher costs for consumers.
California’s banking industry will continue to seek reasonable solutions that provide meaningful consumer protections that avoid long-term damage to the marketplace, cause industry to exit residential lending and increase the cost of credit. The people of California require a full service home mortgage finance system that is accessible, affordable, transparent and effective.
SB 1472 and AB 2314 impose a civil monetary penalty of $1,000 per day on legal owners who fail to maintain foreclosed properties. In 2008, our industry helped create this civil code section as a means to manage neighborhood blight. CBA held a support if amended position on initial versions of these measures which sought to the increase the penalty to $5,000 per day.
AB 2475 and 2476 are companion measures conforming state law to recent changes made to the federal Service Members Civil Relief Act by extending the prohibition on any sale, foreclosure or seizure of real or personal property subject to a mortgage by a service member during the period of military service and for up to nine months thereafter. Mortgages are also added to the list of financial obligations incurred by a service member before that person’s entry into service that cannot bear an interest rate in excess of six percent per year during any part of military service and for one year following the conclusion of service.
SB 980 extends the sunset date on current law prohibiting a third party from charging a fee or other compensation, to be paid in advance by a borrower, for negotiating or attempting to negotiate, arrange or otherwise offering to perform a loan modification.
SB 1069 provides additional protection to consumers by extending anti-deficiency protections when a borrower refinances the then outstanding balance of their residential mortgage loan on a go-forward basis. This measure complements two new laws, supported by the CBA and enacted within the last two years, which preclude consenting creditors from pursuing a borrower for deficiency judgment on first and second lien mortgages when the borrower agrees to a short sale.
CBA-Supported Measures, if Amended
AB 1950 indefinitely extends provisions of current law prohibiting a third party from charging a fee or other compensation, to be paid in advance by a borrower, for negotiating or attempting to negotiate, a residential mortgage loan modification. This measure also extends the existing statute of limitations from one to three years for prosecution of violations of the loan modification advance fee. However, this measure also seeks to impose a new $25 tax on every notice of default filed. This tax will ultimately be paid for by housing market participants already reeling from a market in crisis, and it is also worth noting that not every notice of default results in a final foreclosure. Many foreclosures sales are avoided through efforts including loan modifications, short sales and deeds-in-lieu. CBA will support this measure if the section containing the tax provision is deleted entirely.
SB 1473 and AB 2610 increase the time period prior to a tenant’s eviction from 60 to 90 days or the remainder of an existing lease. Again, in 2008, industry helped create this civil code section designed to address circumstances in which delinquent landlords subject to foreclosure failed to adequately communicate their financial conditions with their tenants. We would support this measure if it included a cross-reference to federal law which already incorporates a definition of “bona fide lease or tenancy”. This would protect tenants who are truly victims of insolvent landlords and would exclude fraudulent transactions that are occurring at less than arms length or for below market rents. Additionally, we have requested a sunset date of January 1, 2018, which is more generous than federal law which is due to expire.
SB 1470, SB 1471, AB 1602 and AB 2425 would all result in a de-facto moratorium on foreclosures. To the extent that home retention efforts fail, foreclosure is an unfortunate but necessary process as set forth in the deed of trust that each borrower agreed to when they sought a mortgage from a lender. CBA agrees that this process must be lawful, fair and respectful of the rights of borrowers, but at the same time, legal devices should not be used to unduly delay the inevitable when other options have been exhausted.
Among other enforcement remedies, these measures grant borrowers a private right of action to seek an injunction prior to a foreclosure sale as a means to further forestall the foreclosure process and provide remedies post foreclosure sale with an award for damages to borrowers irrespective of whether they have experienced real harm.
Additionally, these measures fail to narrowly target at-risk borrowers and apply broadly, including to the increasing population of borrowers that strategically default. In these circumstances, the borrower has the ability to pay their mortgage but because their property has lost value, the borrower ceases payments and uses the foreclosure process and its timeline as a means to build savings. It is unfortunate that the measures divert resources from borrowers who truly wish to avoid foreclosure and want to stay in their home.
The measures also fail to require borrowers to tender any portion of their monthly mortgage payment or arrears as a good faith effort demonstrating their desire to remain in the property and results in borrowers taking advantage of the measures’ overly complex process. For borrowers who strategically default and have no intent to remain in their homes, this legislation will be used as a delay and leveraging tactic.
We remain concerned that actions by federal regulators and state attorneys general may overlap and contradict these measures. The recently announced mortgage settlement agreement contains new servicing standards, including that “borrowers must be thoroughly evaluated for all available loss mitigation options before foreclosure referral, and banks must act on loss mitigation applications before referring loans to foreclosure.” The Consumer Financial Protection Bureau has also been tasked with developing national servicing standards, encompassing foreclosure processes that are to be promulgated this summer and finalized by January 2013.
Finally, unlike previous foreclosure avoidance legislative efforts, these measures propose permanent changes to law that are extraordinarily restrictive. The temporary nature of the foreclosure crisis was acknowledged in the recent national mortgage settlement, which was designed to be temporary. The measures we oppose result in permanent changes to California law, locking a set of procedures inflexibly in statute.
As the economy in California and the nation is improving, this legislation must be carefully considered as it will directly influence our recovery and is likely to hinder emerging improvements in the housing sector. Well-intentioned efforts to help distressed borrowers may further restrict access to credit in the future and have a real impact on viable new homebuyers seeking to achieve the American dream. Advancing legislation that creates additional procedural hurdles or conflicting layers of bureaucracy for loan servicers, without addressing the borrower’s underlying financial condition, may ultimately miss the mark of resolving core economic issues, and will ultimately prove unsuccessful at solving this complex problem.
About the CBA
Established 121 years ago, the California Bankers Association (CBA) is one of the largest state banking trade associations in the country. CBA leads the way in developing relevant educational and legislative solutions to some of California’s more pressing financial and banking issues, including adult financial empowerment, identity theft, financial privacy, and financial elder abuse. CBA’s membership includes nearly 200 of California’s commercial, industrial and community banks and savings associations. For more information, visit www.calbankers.com.