This past week the Legislature’s conference committee on mortgage legislation pushed out two bills, AB 278 and SB 900, purportedly aimed at helping homeowners facing foreclosure. The two measures are scheduled for a vote in both the Assembly and Senate this coming Monday. California’s banking industry is extremely disappointed that members of the conference committee elected to cut short good faith negotiations with our industry, despite more than two months remaining in the legislative session. We believe that had negotiations continued, we would have been able to get closer to reaching common ground.
Our goal throughout this entire process has been to craft a distilled version of the national mortgage settlement applicable to all mortgage servicers, bank and nonbank. We agree that borrowers who request a loan modification should get an answer regarding their eligibility before they are foreclosed upon. We also agree that borrowers who may be eligible for a loan modification should have a consistent point-of-contact to keep them better informed of their status.
However details do matter and the conference committee, in prematurely suspending negotiations, has failed to produce a workable solution with clear rules that the financial services industry can comply with. These bills, AB 278 and SB 900, lack clarity around critical definitions, leave several major issues unaddressed and the remedies provisions fail to focus on truly injured borrowers.
A recent report by Beacon Economics that was commissioned by a consortium of financial services organizations, found that the proposed measures are in fact unlikely to help more than a small fraction of homeowners who are behind on payments, are likely to slow the housing recovery, ultimately reduce home values, and diminish the future availability of credit for California home buyers.
Although it has a considerable way to go, California’s housing market has improved faster than places with restrictive judicial foreclosure processes such as Florida—an outcome highly correlated with the state’s more efficient foreclosure system, the report finds. Foreclosures in California have already fallen dramatically from their peak, sales are beginning to trend upwards, and prices have risen off their 2011 bottom. The report concludes that these two bills also fail to address, or even acknowledge, the fundamental reason behind the state’s wave of foreclosures— borrowers’ underlying financial conditions.
While we remain strongly opposed to these two measures, and hope that the Legislature will do the right thing for California homeowners and the state’s recovering housing market by opposing the measures, California’s banking industry will continue to advocate for reasonable solutions that provide meaningful consumer protections, yet also permit the foreclosure process to proceed for the benefit of the overall economy, other taxpaying homeowners and the communities they live in.