California lawmakers may expand the pool of homeowners afforded protection under an existing state law that requires lenders to contact distressed homeowners and consider them for a loan modification before beginning foreclosures proceedings.
The existing law applies only to homeowners who took out a mortgage during a five-year window, between Jan. 1, 2003 and Dec. 31, 2007.
SB 1275, which was approved by the state Senate in 21-12 vote Thursday, would extend that protection to borrowers who took out a mortgage before Jan. 1, 2009, if their loan is subject to review under the federal Home Affordable Modification Program (HAMP).
Lenders would also be required to contact borrowers and consider loan modifications before beginning foreclosure proceedings on any loan taken out between Jan. 1, 2003 and Jan. 1, 2009, regardless of whether such a review is required under HAMP.
Because 25 to 30 percent of loans are not subject to HAMP, the bill would widen the pool of borrowers who are afforded such protections, bill co-sponsor Sen. Mark Leno, D-San Francisco, told the San Francisco Chronicle.
"Simple fairness dictates that no one should lose their home while they are in the middle of trying to save it," said Paul Leonard, director of the California office of the Center for Responsible Lending, after the bill’s passage.
The California Bankers Association opposes the legislation because it would codify HAMP guidelines, when federal regulators continue to issue new directives for the program, the Chronicle reported. Banks also object that the bill would give borrowers a private right of action to sue lenders who violate its provisions.
The Center for Responsible Lending said it expects that the private right of action provision will be the biggest challenge to moving the bill through the Assembly.
California lawmakers are also considering whether to require that borrowers be given the option of participating in a facilitated mortgage workout program, in which a "neutral conciliation officer" would oversee at least four hours of negotiations between borrower and lender.
That bill, AB 1639, is contingent on federal funding for such a program, which would be available through 2013. Only homeowners who took out loans before Jan. 1, 2009, and whose unpaid principal balance does not exceed $729,750, would be eligible.
Lenders would not have to offer the facilitated workout program if they can document that they have discussed a loan modification or other foreclosure avoidance options with the borrower. AB 1639 passed the Assembly Appropriations Committee May 28 in a 12-5 vote.
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