BILL ANALYSIS
SB 1137
Page 1
Date of Hearing: May 15, 2008
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Pedro Nava, Chair
SB 1137 (Perata) - As Amended: May 6, 2008
SENATE VOTE : 28-10
SUBJECT : Residential mortgage loans: foreclosure procedures.
SUMMARY : Enacts changes related the foreclosure process in
response to the subprime lending/foreclosure crisis.
Specifically, this bill :
1)Makes legislative findings and declarations relating to the
foreclosure crisis.
2)Provides that a mortgage, trustee, beneficiary, or authorized
agent (entities) may not file a notice of default (NOD) until
30 days after contact has been made with the borrower who is
in default.
3)Requires entities to contact a borrower in default in person
or by telephone and inform them of their right to a
subsequent meeting, and telephone number of the United States
Department of Housing and Urban Development (HUD) to find a
HUD certified housing counselor.
4)Allows a borrower to assign a HUD-certified counselor,
attorney or other advisor to discuss with the entities options
for the borrower to avoid foreclosure.
5)Provides that a NOD may be filed when an entity has not
contacted the borrower provided that the failure to contact
the borrower occurred despite reasonable due diligence on the
part of the entity.
6)Provides that "due diligence" means and requires the
following:
a) The entity sends a first class letter that includes the
toll-free number available for the borrower to find a
HUD-certified housing counseling agency; and,
b) Subsequent to the sending of the letter the entity
SB 1137
Page 2
attempts to contact the borrower by telephone at least
three times at different hours and on different days.
7)Requires an entity to maintain a toll-free number for
borrowers that will provide access to a live representative
during business hours.
8)Requires the entity to maintain a link on the main page of its
internet website containing the following information:
a) Options that may be available to borrowers who are
unable to afford their mortgage payments and who wish to
avoid foreclose, and instructions to borrowers advising
them on steps to take to explore these options; and,
b) A list of documents borrowers should collect and be
prepared to submit when discussing options to avoid
foreclosure.
9)Specifies that the notice and contact requirements do not
apply in the following circumstances:
a) The borrower has surrendered the property as evidenced
via a letter or delivery of keys to the property to the
entity;
b) The borrower has contacted a person or organization
whose primary business is advising people who have decided
to leave their homes on how to extend the foreclosure
process and avoid the contractual obligations; or,
c) The borrower has filed for bankruptcy.
10)Provides that the notice and contact requirements only apply
to loans made from January 1, 2003 to December 31, 2007.
11)Makes a legislative finding and declaration that a loan
servicer acts in the best interests of all parties if it
agrees to, or implements a loan modification or workout plan
in one of the following circumstances:
a) The loan is in payment default, or payment default is
reasonably foreseeable; or,
b) Anticipated recovery under the loan modification or
SB 1137
Page 3
workout plan exceeds the anticipated recovery through
foreclosure on net present value basis.
12)Declares that it is the intent of the Legislature that
borrowers receive loan modifications or workout plans if those
arrangements are consistent with the entities contractual
authority.
13)Requires that upon posting of a notice of sale, an entity
shall mail to the borrower a notice in English and Spanish,
Chinese, Tagalog, Vietnamese, or Korean that states:
"Foreclosure process has begun on this property, which may
affect your right to continue to live in this property. Twenty
days or more after the date of this notice, this property may
be sold at foreclosure. If you are renting this property, the
new property owner may either give you a new lease or rental
agreement or provide you with a 60-day eviction notice.
However, other laws may prohibit an eviction in this
circumstance or provide you with a longer notice before
eviction. You may wish to contact a lawyer or your local legal
aid or housing counseling agency to discuss any rights you may
have."
14)Provides that the legal owner of vacant property shall
maintain the property in accordance with current law and a
failure to do so may result in a $1,000 per day fine.
15)Requires a governmental entity that imposes a fine must give
notice of the violation and provide 30 days for the owner to
remedy the violation prior to imposing the fine.
16)Defines "failure to maintain" as a failure to care for the
exterior of the property, including, but not limited to,
permitting excessive foliage growth that diminishes the value
of surrounding properties, failing to take action to prevent
trespassers or squatters from remaining on the property, or
failing to take action to prevent mosquito larvae from growing
in standing water or other conditions that create a public
nuisance.
17)Requires that a tenant or sub-tenant of a rental unit shall
be provided 60 days notice after a property is sold into
foreclosure before the tenant or sub-tenant may be removed
from the property.
SB 1137
Page 4
18)Sunsets the provisions on January 1, 2013.
19)Contains an urgency clause.
EXISTING FEDERAL LAW :
1)Authorizes federally-chartered financial institutions to
engage in the business of mortgage lending, brokering, and
servicing and governs the rules under which such activities
may be conducted under a wide variety of laws, including, but
not limited to, the Home Ownership and Equity Protection Act
(HOEPA), Real Estate Settlement Procedures Act (RESPA), Truth
in Lending Act (TILA), Home Mortgage Disclosure Act (HMDA),
and regulations that interpret those acts (most notably
Regulation C, which interprets the Home Mortgage Disclosure
Act and Regulation Z, which interprets the Truth in Lending
Act);
2)Generally regulates the financial institutions that engage in
mortgage lending and brokering under five different agencies,
including the Office of the Comptroller of the Currency (OCC),
Federal Reserve Board (FRB), Office of Thrift Supervision
(OTS), Federal Deposit Insurance Corporation (FDIC), and
National Credit Union Administration (NCUA);
3)Additionally regulates the brokerage and lending activities
conducted under federal law using two additional federal
agencies, including the Department of Housing and Urban
Development and the Federal Trade Commission.
EXISTING STATE LAW :
1)Defines a mortgage is a contract by which specific property,
including an estate for years in real property, is
hypothecated for the performance of an act, without the
necessity of a change of possession. "Mortgage" also means any
security device or instrument, other than a deed of trust that
confers a power of sale affecting real property or an estate
for years therein, to be exercised after breach of the
obligation so secured, including a real property sales
contract. [Civil Code, Section 2920]
2)Provides that every transfer of an interest in property, other
than in trust, made only as a security for the performance of
another act, is to be deemed a mortgage, except when in the
SB 1137
Page 5
case of personal property it is accompanied by actual change
of possession, in which case it is to be deemed a pledge.
Where a power of sale is conferred upon the mortgagee,
trustee, or any other person, to be exercised after a breach
of the obligation for which that mortgage or transfer is a
security, the power shall not be exercised except where the
mortgage or transfer is made pursuant to an order, judgment,
or decree of a court of record, or to secure the payment of
bonds or other evidences of indebtedness authorized or
permitted to be issued by the Commissioner of Corporations
until all of the following apply: the trustee, mortgagee, or
beneficiary, or any of their authorized agents shall first
file for record, in the office of the recorder of each county
wherein the mortgaged or trust property or some part or
parcel, a notice of default. That notice of default shall
include all of the following:
a) A statement identifying the mortgage or deed of
trust by stating the name or names of the trustor or
trustors and giving the book and page, or instrument
number, if applicable, where the mortgage or deed of
trust is recorded or a description of the mortgaged or
trust property;
b) A statement that a breach of the obligation for
which the mortgage or transfer in trust is security has
occurred; and,
c) A statement setting forth the nature of each breach
actually known to the beneficiary and of his or her
election to sell or cause to be sold the property to
satisfy that obligation and any other obligation secured
by the deed of trust or mortgage that is in default.
[Civil Code, Section 2924]
3)Provides for the regulation of residential mortgage lenders
and California finance lenders by the Department of
Corporations (DOC) and for the regulations of state banks and
credit unions by the Department of Financial Institutions
(DFI).
FISCAL EFFECT : Unknown
COMMENTS :
SB 1137
Page 6
This bill is the Senate's response to the foreclosure crisis
that has gripped California and the nation over the last year
and a half. It is made up of several provisions to address key
issues that have been identified as most problematic concerning
the foreclosure process. It is important to note that this
bill, as currently drafted, represents a compromise that was
reached between industry, consumers and the author.
A major problem facing both borrowers and servicers is the lack
of communication between parties concerning the inability to
make a mortgage payment, or the possibility of impending
financial difficulties. Government officials, lenders and
community organizations have all pleaded with borrowers to
communicate as soon as possible if they are in trouble of
missing a mortgage payment. Most data reflects that the earlier
a borrower communicates with their lender, the easier it can be
to find a solution. Going beyond the public pledges of
increased contact, this bill requires that the mortgagee or
trustee contact the borrower, or attempt to make contact, at
least 30 days prior to mailing a NOD.
Another indirect consequence of the foreclosure crisis are the
numerous renters who made their rental payments on time and
remained in good standing only to find themselves evicted due to
the legal owner of the property failing to pay their mortgage on
the property. During the housing boom many buyers purchased
properties with non-traditional financing in order to acquire
rental properties. This arrangement began to turn south last
year with the collapsing mortgage market. Some renters found
notices attached to their door addressed to the owners. Often,
these notices were overlooked because they were addressed to
someone other than the renter, and then the occupants found
themselves days away from being on the street. This bill
provides additional time to the current law timeframe of 30 days
for eviction to a total of 60 days subsequent to the foreclosure
sale to give renters in a foreclosed home sufficient time to
make other housing arrangements.
The glut of abandoned foreclosed properties has led to distress
in local communities as cash-strapped local governments deal
with blighted property. These properties, in some cases, are
magnets for criminal activity such as vandalism and theft.
Additionally, vacant properties with swimming pools can become a
health hazard due to standing water becoming a breeding ground
for mosquitoes that may carry the West Nile virus. Empty rooms
SB 1137
Page 7
lure squatters and vandals and brown lawns and dead vegetation
are creating eyesores in well-tended neighborhoods. The L.A.
Times wrote an article in 2007 titled, "Untended properties
become eyesores. Then there are the uninvited guests:
mosquitoes, vandals and squatters." The City of L.A. is
increasing the number of inspectors in the L.A. vacant-building
program from 15 to 27 trying to stay current with the number of
vacant homes they have to deal with.
Neglected foreclosed properties subject the neighborhood and
municipality to drug crimes, prostitution, vagrants living in
the foreclosed property, vandalism and a host of other social
ills. As the foreclosed property falls deeper into disrepair
the values of the surrounding homes and business also
deteriorate alarmingly, further adding to the 'foreclosure
blight' and destruction of whole neighborhoods.
This bill responds to the vacant property issue by requiring
that the owner maintain a vacant property or face $1,000 per day
fine. It also provides the owner 30 days to correct a violation
once notification has been received from the local government.
Finally, this bill makes legislative findings and declarations
concerning the suitability and fiscal necessity of loan
modifications. Specifically, the findings declare that
servicers act in the best interests of all parties when they
agree to implement loan modifications or workout plans where
long term performance of the loan exceeds recovery through the
foreclosure process. This section is a welcome explanation of
the Legislature's policy and direction concerning what is
expected of loan servicers in California related to trouble
borrowers. The reviews are mixed, as far as the actual results
of loan modifications and borrower outreach. It is clear that
very few loan servicers have had the necessary infrastructure to
meet the surge in borrower demand. Recently, counseling
agencies and servicers have staffed up their operations to
increase outreach and response to customer inquires concerning
loan modifications.
Recently the Hope Now Coalition, a coalition of mortgage
industry participants, that have come together to streamline
loan modifications and workout plans released their data for the
first quarter of 2008. From July 2007 to the end of the first
quarter of 2008 lenders have helped 1.2 million borrowers. The
vast majority, 848,000, were repayment plans, which are
SB 1137
Page 8
generally not as helpful to borrowers. A study by Freddie Mac,
Interventions in Mortgage Default: Policies and Practices to
Prevent Home Loss and Lower Costs, found that the cure rate
among loans that are only 30 days delinquent is just under 60%,
but that rate falls to less than 30% if the borrower is 3 or
more payments behind at the onset of the plan. In 2008, nearly
37% of the workouts, reported by Hope Now, were classified as
modifications. Most troubling, 40% of the subprime, adjustable
rate mortgage borrowers who went into foreclosure in the three
months ended September 30 - the most recent figures available -
had already gone through a workout with their lenders, according
to a study from the Mortgage Bankers Association.
Subprime crisis.
In response to the extreme financial losses incurred by
investors, the market for subprime mortgages has adjusted
sharply. Investors demanded that mortgage originators employ
tighter underwriting standards, and some large lenders have
pulled back from the use of brokers.
Delinquency rates on subprime loans remained at historically low
levels through most of 2004 and 2005. The staggering increases
in home price appreciation provided subprime borrowers with an
equity buffer that allowed borrowers to refinance into a more
affordable loan or sell their property for a profit. However,
this price appreciation, not only provided a needed buffer for
subprime borrowers, but also, may have fueled a further easing
of underwriting standards. A Credit Suisse report, Mortgage
Liquidity Du Jour: Underestimated No More (March 12, 2007)
conducted by Equity Research, found that "?in the last nine
months anybody with a pulse that interested in buying a home was
able to get financing?"
Additionally, California is now facing the prospect of reduced
revenues due to foreclosures and increase local government costs
to mitigate foreclosure related issues. This crisis has also
been labeled as a "turning back of the clock" on the recent
gains of homeownership and asset building opportunities for many
communities that have been left out of other wealth building
opportunities. Several California communities rank in the top
ten nationwide in the number of foreclosures and defaults.
The Congressional Joint Economic Committee estimates that the
subprime lending crisis in the United States will result in
SB 1137
Page 9
almost 2 million foreclosures nationwide. In California,
lenders filed 72,571 "notices of default" on borrowers in the
third quarter of 2007, eclipsing a record of 61,541 set in 1996,
according to DataQuick Information Systems. Most of the loans
that went into default last quarter were originated between July
2005 and August 2006. Actual losses of homes to foreclosure
statewide totaled 24,209 during the third quarter, the highest
number since DataQuick began recording data in 1988, up 38.7%
from last quarter and up six-fold year-over-year.
In the midst of this market correction, borrowers are facing
increased pressures as adjustable rate mortgages (ARMS) reset to
higher rates, home prices decline, and new borrowers are limited
in options as the market engages in retrenchment.
The crisis is the result of a confluence of circumstances that
has played into the unusually poor performance of subprime
mortgages that were originated in 2006. Among the largest
contributing factors were relaxed underwriting standards and
subsequent deterioration in mortgage payment performance. In
addition, many market participants have suggested that fraud,
such as misrepresentations made by mortgage brokers, appraisers
and the borrowers themselves, has also played a significant role
and exacerbated the problem. Numerous sources have indicated
that home values, borrowers' incomes, as well as, other
information may have been overstated and the intended use of the
home was often misstated (i.e., as a primary residence rather
than an investment property).
Second, the mortgage lending system allowed incentives to push
some people into loans that they should never have taken. For
instance, some brokers received incentives if they placed a
person in a subprime loan even though the person also qualified
for a prime loan. Some brokers were also enticed through
increased sales commissions to sell as many loans as they could,
since they receive their commissions regardless of whether or
not a person defaulted on the loan a year or two later.
Third, the decline in home prices on a national basis has been a
significant factor in the decline in subprime mortgage loan
credit performance. People who now had homes at lower values,
or had loans larger than the value of their homes, were
frequently unable to refinance with other lenders.
Also, variety of mortgage companies that had issued subprime
SB 1137
Page 10
loans overextended themselves in the market causing many of
their creditors to demand payments on lines of credit
immediately. This meant that several of the largest non-bank
lenders of subprime loans were forced to file bankruptcy and
foreclose on loans. Stricter lending practices by remaining
mortgage companies have also been a factor in the subprime
mortgage crisis, since some of the homeowners were ineligible
for any type of loans based on new criteria.
According to Moody's Investors Service July 2007 marked the
twelfth consecutive month of home price decline on a
year-over-year basis. This is the longest period of declining
home prices on a national basis since 1969, and declining home
prices have reduced borrowers' equity in their homes and
constrained their refinancing opportunities. The borrowers most
affected by the housing downturn have been those who because of
the timing of their purchase did not realize benefit from the
price appreciation that had occurred in prior years.
Compounding the problem of declining home prices is that many
borrowers took out ARMs with low introductory rates in the hopes
that housing prices would continue to rise and afford the
borrower enough equity to refinance at a fixed APR. In other
cases, loan originators downplayed or ignored the risk to
borrowers with some ARM products.
Fourth, the introduction of exotic products in the market-place
including option-ARMS, low teaser rate loans, no-documentation,
stated-income and other non-traditional products originally
meant for sophisticated borrowers were used as tools to
circumvent traditional underwriting standards. In addition, the
increase in zero down payments, 100% financed subprime loans
increased home ownership opportunities, but at the same time
increased the risk of those loans. People who were on a thin
financial cushion were offered the opportunity to take out
multi-hundred thousand dollar loans with no down payment,
sometimes with no income documentation.
Finally, the stunning lack of financial literacy was a major
contributing factor to the subprime crisis. A recent Wall
Street Journal article noted that in a survey, approximately
one-third of homeowners had no idea what type of home loan they
had. The typical borrower is often overwhelmed by the
complicated process of purchasing a home. In many cases, had a
borrower known the right questions to ask they could have
avoided long-term financial collapse. Unlike some other states,
SB 1137
Page 11
California does not require that financial literacy concepts be
taught in its school curriculum.
During the past two years, serious delinquencies among subprime
ARMs have increased dramatically. According to Federal Reserve
Chairman Ben S. Bernanke The fraction of subprime ARMs past due
ninety days or more or in foreclosure reached nearly 15 percent
in July 2007, roughly triple the low seen in mid-2005. For
so-called near-prime loans in alt-A securitized pools (those
made to borrowers who typically have higher credit scores than
subprime borrowers but still pose more risk than prime
borrowers), the serious delinquency rate has also risen, to 3%
from 1% only a year ago. These patterns contrast sharply with
those in the prime-mortgage sector, in which less than 1% of
loans are seriously delinquent.
Higher delinquencies have begun to show through to increased
foreclosures. About 320,000 foreclosures were initiated in each
of the first two quarters of this year (just more than half of
them on subprime mortgages), up from an average of about 225,000
during the past six years. Foreclosure starts tend to be high
in states with stressed economic conditions and rise where house
prices have decelerated or fallen.
Adjustable-rate subprime mortgages originated in late 2005 and
in 2006 have performed the worst, with some of them defaulting
after only one or two payments (or even no payment at all).
Relative to earlier vintages, more of these loans carried
greater risks beyond weak borrower credit histories--including
very high initial cumulative loan-to-value ratios and less
documentation of borrower income. The originate-to-distribute
model seems to have contributed to the loosening of underwriting
standards in 2005 and 2006. When an originator sells a mortgage
and its servicing rights, depending on the terms of the sale,
much or all of the risks are passed on to the loan purchaser.
Thus, originators who sell loans may have less incentive to
undertake careful underwriting than if they kept the loans.
Moreover, for some originators, fees tied to loan volume made
loan sales a higher priority than loan quality. This
misalignment of incentives, together with strong investor demand
for securities with high yields, contributed to the weakening of
underwriting standards.
SB 1137
Page 12
The fragmented market structure of mortgage originators in the
subprime-lending industry may also have contributed. Data
collected under HMDA show that independent mortgage
companies--those that are not depository institutions or their
subsidiaries or holding company affiliates--made nearly half of
higher-priced first-lien mortgages in 2006 but only one-fourth
of loans that were not higher-priced.
In addition, the sharp deceleration in home prices since 2005,
including outright declines in some markets, left many of these
more-recent borrowers with little or no home equity. In this
situation, some borrowers (particularly owner-investors) may
have found that simply walking away from their properties was
their best option. Moreover, low home equity has made
refinancing--the typical way for many subprime borrowers to
avoid large scheduled interest rate resets--difficult or
impossible for many. Thus, with house prices still soft and
many borrowers of recent-vintage subprime ARMs still facing
their first interest rate resets, delinquencies and foreclosure
initiations in this class of mortgages are likely to rise
further. It is difficult to be precise about the number of
foreclosure initiations expected in coming quarters, as it will
depend on (among other factors) the evolution of house prices,
which will vary widely across localities. Historically, about
half of homeowners who get a foreclosure notice are ultimately
displaced from their homes, but that ratio may turn out to be
higher in coming quarters because the proportion of subprime
borrowers, who have weaker financial conditions than prime
borrowers, is higher.
The increased portion of homes lost to foreclosure reflects the
slow real estate market, as well as the number of homes bought
during the height of the market with multiple-loan financing. In
selling a home, all loans must be paid off, which is not the
case in the formal foreclosure process, where second mortgages
and lines of credit are most often written off.
Exotic mortgages with low "teaser" interest rates that increase
significantly after several years, interest-only mortgages, and
mortgages made with little or no income verification have helped
drive the homeownership rate in the United States to a record
70%. These subprime loans are made possible in part by mortgage
securitization, where pools of principal and interest payments
SB 1137
Page 13
for mortgages are bundled into securities and sold to investors,
a process that diversifies the risk of lending to borrowers with
less than optimal credit. Nontraditional credit and
securitization have been useful tools to make credit available
to those who might not otherwise qualify.
Unfortunately, many of the borrowers who took advantage of
subprime loans have been unable to afford the mortgages they
received. As interest rates have risen and property values
decreased, foreclosures have occurred at alarming rates and
delinquencies continue to climb. Many borrowers were duped into
mortgages they could not repay, or simply made poor financial
decisions. The consequences are grim. Millions may lose their
homes. Even borrowers with good credit are having more
difficulty finding lenders willing to grant them mortgages. Many
mortgage lenders are going bankrupt. Credit standards are
tightening. Investors are losing money on subprime mortgage
bonds. Economists predict that the effect of these lending
practices on the economy will be felt for years to come.
Foreclosure-Subprime Crisis By-the-Numbers.
During February 2008, the most recent month for which
foreclosure data are available, RealtyTrac reported that
California, Nevada, and Florida continued to document the
highest foreclosure rates in the country. California's
foreclosure rate was second highest in the nation, with one in
every 242 households receiving a foreclosure filing during the
month. Foreclosure filings were reported on a total of 53,629
California properties in February, a 131% increase from February
2007. California and Florida metropolitan areas accounted for
nine of the top ten metropolitan foreclosure rates in February.
Stockton, California had the second highest foreclosure rate in
the country (one out of every 87 households). Other California
Metropolitan areas in the top ten were Modesto (#3), Merced
(#4), Riverside-San Bernardino (#5), Bakersfield (#7),
Vallejo-Fairfield (#8), and Sacramento (#9).
Recently the California Research Bureau (CRB) released a report
titled "Foreclosures in California-The current housing crisis is
more severe than previous corrections."
SB 1137
Page 14
The CRB foreclosure report highlights the following:
1)The estimate of housing foreclosures in California, spanning
the three years 2006 - 09, varies from 170,000 to 434,000.
Therefore, foreclosures will affect between 3.0 and 7.8
percent of all home owners with mortgages in the state by
2009.
2)Since this housing crisis is much more extreme than previous
corrections, the recovery may not follow the same path as
previous recoveries. In fact, some observers are comparing
this cycle to the one experienced during the Great Depression,
since this is the first cycle since then in which home prices
have fallen throughout the nation.
3)The current evidence suggests the buyers who bought at the
peak in 2006 - 07, paid the most inflated prices, were more
likely to avail themselves of subprime adjustable rate
mortgages (ARMs), and may now be at risk of being in negative
equity positions (upside down on their mortgages). A 20% drop
in prices from their peaks could leave as many as 14 million
households with negative equity 9 - 2.8 million households in
California.
4)The percentage of foreclosures of all mortgages outstanding is
higher for California than for the nation as a whole.
5)The Pew Center on the States study presents California's
policy responses to the housing foreclosure crisis and the
responses of other states and suggests that the states and the
nation could be doing more to address the problem.
Commendably, California has taken action to modify loans, but
the study suggests that California could be doing more to help
those at risk of losing their homes by, for example, helping
them avoid falling victim to fraudulent rescue schemes and
providing them with more counseling.
6)Moody's Economy forecast is for 411,000 defaults in
Californian in 2008, compared with 212,000 defaults in 2007.
Defaults do not always lead to foreclosure, but many do.
California had 15% of the defaults last year and is expected
to have 20% this year.
Related state legislation :
SB 1137
Page 15
AB 69 (Lieu) of 2007 requires loan servicers to report data
regarding their loan modification efforts. This bill is pending
before Senate Banking, Finance and Insurance committee.
AB 180 (Bass) of 2007 revises the law related to foreclosure
consultants to ensure that those facing foreclosure do not
become further victimized by scams or outrageous fees. Provides
for a registration process for persons acting as foreclosure
consultants. This bill is pending before Senate Judiciary
committee.
AB 529 (Torrico) of 2007 requires lenders to notify borrowers of
an impending interest rate reset of an adjustable rate mortgage.
This bill is currently pending in Senate Banking, Finance and
Insurance committee.
AB 1837 (Garcia) of 2008, bans payment of compensation for
originating a subprime loan or nontraditional loan with an
interest rate above the wholesale par rate for which the
consumer qualifies. Currently in Assembly Banking and Finance
committee.
AB 2161 (Swanson) of 2008, would enact a mortgage lender
complaint processing system. Furthermore, it requires lenders
to have a dedicated complaint processing system to handle
borrower complaints and assist borrowers with workout
opportunities. Also requires lenders to document complaints and
submit complaint logs to their regulator. This bill is
currently in Assembly Appropriations.
AB 2187 (Caballero) of 2008, requires each notice of default and
foreclosure to include a homeowner bill of rights that provides
a list of their legal rights and responsibilities in the
foreclosure process. This bill is currently pending in Assembly
Appropriations.
AB 2880 (Wolk) of 2008, specifies, among other things, that that
mortgage brokers have a fiduciary responsibility to their
clients, and requires licensees to maintain a surety bond with
their regulator. This bill is currently Assembly Appropriations
Committee.
AB 2740 (Brownley) of 2008, provides that a loan servicer, or a
bank, credit union, or finance lender that services loans
SB 1137
Page 16
secured by residential real property, owes a duty of good faith
and fair dealing to a borrower. The bill would regulate the
fees and charges that may be imposed to loan servicers and
mortgage loan servicers. The bill would also establish various
other prohibited acts and requirements applicable to the
servicing of residential mortgage loans. Currently on Assembly
third reading.
SB 1053 (Machado) of 2008, requires every real estate broker
licensed by California Department of Real Estate (DRE) who
makes, brokers, or services mortgages to notify DRE about those
activities on an annual basis; requires supervising real estate
brokers (those in charge of mortgage brokerage businesses) to
submit detailed compliance reviews of their books and records to
DRE annually, along with business activity reports detailing the
loans their businesses brokered, made, and serviced during the
prior year. Currently in Senate Appropriations.
SB 1054 (Machado) of 2008, in relevant part, gives DRE the
ability to ban individuals who have been found guilty of
violating the Real Estate Law from real estate-related
employment for up to three years. Currently Held At Assembly
Desk
SB 1604 (Machado) of 2008, under finance lenders law, requires
that applicants show a minimum tangible net worth of $25,000 for
"brokers," $50,000 for "a broker engaged in the business of
negotiating or performing acts in connecting with residential
mortgage loans," and $250,000 for finance lenders (of
residential mortgage loans), and requires that licensees
maintain the applicable net worth at all times; maintains surety
bond generally at $25,000, but increases to $50,000 for finance
lenders (of residential mortgage loans); requires any person
seeking employment with a finance lender or broker to complete a
specified employment. Currently in Senate Appropriations.
REGISTERED SUPPORT / OPPOSITION :
Support
AARP
Affordable Housing Services
Asset Policy Initiative of California
ByDesign Financial Solutions
California Alliance for Retired Americans
SB 1137
Page 17
California Capital Financial Development Corp
California Coalition for Rural Housing
California Community Economic Development Association
California Federation of Teachers
California Labor Federation (AFL-CIO)
California LULAC Housing Commission
California Reinvestment Coalition
California Resources and Training (CARAT)
Center for California Homeowner Association Law
Center for Human Rights, Law, and Advocacy
Center for Responsible Lending
CHARO
Civic Center Barrio Housing Corporation
Community Housing and Credit Counseling Center
Community Legal Services in East Palo Alto
Consortium for Elder Abuse Prevention
Consumer Action
Consumer Federation of California
Consumers Union
East LA Community Corporation
East Oakland CDC
Fair Housing Council of Orange County
Fair Housing Council of the San Fernando Valley
Fair Housing of Marin
H.O.U.S.E. (Home Ownership Utilizing Supportive Education)
Housing and Economic Rights Advocates
Housing Rights Center
Human Rights/Fair Housing Commission of Sacramento
Jefferson Economic Development Institute
Just Cause Oakland
Love, Inc.
Low Income Investment Fund
Mission Community Financial Assistance
Mission Economic Development Agency
National Council of La Raza
Nehemiah Community Reinvestment Fund
Non Profit Housing of Northern California
Northbay Family Homes
Orange County Community Housing Corporation
Pacific Asian Consortium in Employment (PACE)
Project Sentinel
Public Interest Law Firm of the Law Foundation of Silicon Valley
Renaissance Entrepreneurship Center
Rural Community Assistance Corporation
Sacramento Mutual Housing Association
SB 1137
Page 18
Self-Help Enterprises
SF EARN
Sierra Planning and Housing Alliance, Inc.
Suburban Alternatives Land Trust
The Watsonville Law Center
Unity Council
Urban Strategies Council
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081