California Lawmakers Clear Bill Aimed At Stopping Foreclosures

Posted on January 21st, 2008 by saman

California’s declining housing market, which arose from the sub prime mortgage crisis, has given rise to a new bill designed to prevent the foreclosure of homes that have been financed with sub prime mortgages. The new bill, which has just been approved by the Senate Banking, Finance and Insurance Committee, would mandate that lenders and loan servicing organizations, personally meet with a borrower who may default on his loan. It also requires that homeowners be notified of pending interest rate resets 120 days before the reset occurs.

The bill represents just one more step in a series of election-year efforts to demonstrate to voters that lawmakers are on top of the crisis and working hard to affect solutions. It supplements efforts made by Governor Arnold Schwarzenegger and Treasury Secretary Hank Paulson get mortgage servicers to freeze interest rates for a period on loans or refinance them for lower monthly payments.

Senate President Pro Tem Don Perata also wants to mandate notifications to homeowners that their mortgage payments are about to go up dramatically due to coming interest rate resets. He also wants to try and keep people from being foreclosed by making certain that homeowners and lenders communicate with each other many months before foreclosure becomes inevitable. Moreover, Perata wants this to be a face-to-face meeting to assess the borrower’s financial situation and suggest likely alternatives and next steps.

Right now, more than six proposals to help troubled homeowners are under consideration and will soon be introduced in both houses of the state legislature.

Just a few days ago, the Assembly Banking & Finance Committee endorsed a proposal by committee Chairman Lieu that would mandate that lenders inform the state on the results of voluntary programs aimed at helping troubled homeowners. Lieu fears that the data will not show aggressive modification of loans to keep homeowners out of foreclosure, since much available data shows that these efforts are not being made in many cases.

Mortgage bankers and loan servicing firms are not generally in favor of the proposals made by Lieu and Perata. They do, however, support voluntary state and federal efforts to aid homeowners. It has been noted that Countrywide Financial Corporation has made a strong effort to help with mortgage refinancing and other foreclosure prevention methods.

The California Assembly committee also approved two other sub prime related bills: A notification plan much like Perata’s along with a measure that would require mortgage counselors to post a security bond and register with the state Department of Justice.

The bill just approved by the panel would also ban penalties for early payment of sub prime loans when they are part of a refinancing agreement, and would prohibit loans with artificially-low interest rates that don’t cover accruing interest charges. It also calls for lenders to meet with borrowers to make sure that they can actually afford the loan and bar brokers from receiving any financial incentive for steering loan prospects into mortgages with rates higher than they can qualify for.