Two influential California lawmakers who pushed legislation last year to require lenders to provide borrowers with a decision on their loan modification applications before starting the foreclosure process have made good on their promise to not give up.
The bill by Senate President Pro Tem Darrel Steinberg (D-Sacramento) and Sen. Mark Leno (D-San Francisco) passed the Senate last year but failed in the General Assembly. Now they have reintroduced the measure, SB 175, they say will avoid wrongful foreclosures.
"Banks should not foreclose on a family's home until they inform the owner whether the loan can be modified to an affordable level," said Sen. Leno. "California homeowners who qualify for modifications should get them –– not a foreclosure notice."
The lawmakers pointed out that mortgage servicers commonly pursue a "dual-track" approach with borrowers, meaning they are going through the modification and foreclosure processes at the same time. But the problem with this practice, they said, is that once the foreclosure process starts, it is nearly impossible to stop, regardless of whether a borrower ultimately qualifies for a loan modification. And as a result, many owners unnecessarily lose their homes.
Their bill would require that borrowers be given a clear answer on a possible loan modification before the foreclosure process can begin. If a borrower applies for a loan mod in a timely fashion, the servicer must evaluate the application and make a "yes" or "no" determination before commencing foreclosure proceedings.
The measure also would require servicers to: Show proof of ownership of the note and the right to foreclose when they record notices of default; Give borrowers a life-of-loan accounting at the same time they receive default notices, including an accounting of all payments with application and running balances, an itemization and description of all fees charged and the like.
Last year, 305,000 California home owners received notices of default and more than 170,000 families actually lost their homes to foreclosure.
"It was a major disappointment when last year's bill failed to pass the Assembly," said Paul Leonard, director of the California office of the Center for Responsible Lending, which is backing the legislation along with California Labor Federation and California Reinvestment Coalition. "Perhaps all the recent news of robo-signing, bank errors and wrongful foreclosures will mean another chance at getting real protections for California homeowners."
