Homeowner Protection Bill Awaits Governor's Signature
FUDGE: I'm Tom Fudge in for Maureen Cavanaugh, and you're listening to KPBS Midday Edition. Last year in spring and summer, almost 1,000 San Diegans were losing their homes every month. This year, things are better. The rate is about half that. But there's still plenty of distressed homes whose owners need help. Kamala Harris says half a million people in the state are in the foreclosure pipeline, yesterday, the homeowners' bill of rights passed the legislature. California would be the first state in the nation to pass these protections, and governor brown said he will sign the legislation. But there remain questions about how well it's going to work. David Lagstein, and Vino Pajanor, joining me in studio. David is with the alliance of Californians for community empowerment. Thanks a lot. LAGSTEIN: Thank you for having me here. FUDGE: And Vino is executive director of the housing opportunities collaborative. They work directly with distressed homeowners. And thank you very much. PAJANOR: Thank you, Tom. FUDGE: Let's start talking about the homeowners' bill of rights. I know one of the provisions of the law bans dual tracking. What's that? LAGSTEIN: Dual tracking is really a sinister practice of the banks. There's no other way to say it. In the case where a homeowner is trying to negotiate a modification, they're waiting for answers on lost paperwork, the foreclosure department of the bank will move forward on a foreclosure, and many families have lost their house because of this dual track. In legislation bans that. FUDGE: And Vino, how prevalent is dual tracking, and is this misleading to the homeowners when that happens? PAJANOR: It's quite prevalent, and over four or five years, many of the individuals have seen that the banks are trying to accommodate that process. But we have seen that even when a homeowner puts in a loan modification, the institution of the banks are proceeding with the foreclosure and cutting off negotiations with the homeowner. FUDGE: When you're working on a loan modification, you're a homeowner, you continue to make your mortgage payments, where you might not if you knew you were going to be foreclosed upon. LAGSTEIN: I think the process is incredibly difficult for a homeowner, and they have to make decisions without good communication from their bank. It's worth mentioning the legislation also guarantees a single print of contact for struggling homeowners. FUDGE: And why is that important? LAGSTEIN: It's critically important. So many homeowner, and Vino can attest to this, they speak to somebody different every time. It's very, very common for there to be lost paperwork, and each to try and get from point A to B in pursuit of a modification, people are, you know, being left on hold, hung up on, being dealt with a different person every time. FUDGE: And what this also does, this package of legislation, it would give a clear explanation to homeowners of why they were rejected on a loan modification. It gives homeowners the right to sue if banks ignore the new law. David? LAGSTEIN: What's key here is that this gives the borrower leverage. The borrower has the ability to go to court if the bank is not following the process and the law. And there have been so many cases where the banks are violating the law, and unless there's consequences, they've proven again and again they're not going to do it. It's not going to stop all foreclosure, but it will provide a due process for homeowners who are trying to do their part, make their payments, and are not getting responsiveness or fairness from banks. This is a victory for homeowners. PAJANOR: Yes, especially the single point of contact is a key win for the homeowners. When a homeowner calls into the financial institution of the bank, they get channelled to a different representative. So they're not getting a continuum of responses. So this process of having a single point, the person has the history of the particular homeowner and knows what they're complicated with. And the documentation, even after our or five years into the crisis, we still have financial institutions saying even after they've faxed it, sent it by certified mail, they lose the documentation. But the sentence point of contact, the hope is that this person will be able to get in contact with the homeowner and acquire all the documentation and not lose it in the process, thereby enabling if a loan modification is possible they are able to do it with the documentation provided, and updating the documentation when a loan is given to them. FUDGE: And anyone who has dealt with foreclosure knows it's difficult to talk to a bank. You get transferred to a different person every time you call. How big a deal is this? Is there any reason to be surprised that this legislation passed? LAGSTEIN: This really is a big deal. We think this is going to be groundbreaking legislation that other states will copy. This was a battle of David against Goliath. The banks spend $70,000 a day in lobbying and legislation to write their own rules. Thousands of people stood up, visited their legislators, signed online petitions, made phone calls, participated in community events, and the message was cheer that our legislators needed to decide if they were on the side of Wall Street banks or on the side of homeowners. And in this case, David prevailed over Goliath. So I want to be clear, this doesn't stop all foreclosures. There's a lot more work to do. But in terms of overcoming the strength and the financial resources of the banks industry, this is a huge victory. FUDGE: How does this homeowner's bill of rights relate to the settlement with banks earlier this year? This was a nationwide settlement in which five big banks agreed to pay billions of dollars to California homeowners. LAGSTEIN: This really locks down the provisions and strengthens the policies that were put into place with this settlement. $18 billion in benefits went to Californians, and this is because our attorney general stood up and was a tough negotiator, and more important, $8.9 billion in principle reduction for 2,500 families in California were a part of this settlement. And what this legislation did is it dealt with the foreclosure process to stop families from foreclosure, but the bigger solution is to get principle rate down, reducing the principle and the mortgage that a family owes to the banks. This is the way to deal with the housing crisis. And this is a way to get the economy moving. FUDGE: Any comment from you, Vino? PAJANOR: Yes, of course this bill -- this law is going to compliment the settlement, $18 billion. And out of that, about $410 million was cash that was put into the settlement fund in California for helping and educating homeowners, as well as creating a monitor who will be monitoring how this whole settlement process is going to happen. Unfortunately has a big problem. And the governor in his budget in May, which was passed last week, has taken that $410 million, and put it into the general fund, thereby greatly reducing almost 90% the funds that are out there for housing counseling agencies to provide services, as well as a monitor to moppitor the settlement. Right now, the proposed amount is only $18.2 million of over $410 million that have come down to California. NEW SPEAKER: I was mailing and faxing, and it was like I was organizing them. And we had multiple phone calls coming in, one person would say they'd need A, B, and C, and then the contact with the realtor would say they needed something else. And it was just very, very stressful. FUDGE: An argument in favor of that one aspect of having one point of contact at the contact. David? LAGSTEIN: I just want to say to the caller to, I'm so sorry that you dealt with this, and unfortunately this is not unique. We're talking about some of the numbers, but the cost to individual families, what people are going through is just astounding. There was a horrible case that was here in California where a family was trying to negotiate with Wells Fargo because they lost a cashier's check, and they were on the verge of foreclosure, and the gentleman involved actually killed himself. That's an extreme case, but there's hundreds of thousands of cases where there's a human cost to this. And this legislation gets at helping to relieve this situation and this problem. FUDGE: Joe in Oceanside. NEW SPEAKER: I feel very for anybody who's being foreclosed on, but this kind of legislation is going to lead to higher interest rates in the future. If there's regulations that make it easier for somebody to get out of a mortgage, a contract, an obligation, then anybody who's going to be making a mortgage going forward in California is probably going to wind up saying to themselves, well, this is riskier, I need to get a higher interest rate to cover me from this kind of loss. So in a perverse way, I think it's going to make it more extensive and harder for people going forward. FUDGE: Then I guess opponents to this legislation in the legislator said that foreclosures are painful, but you got to let them go forward because that's the way the system works. Vino, would you like to comment on that or on the caller's question? PAJANOR: Sure. On the question of that's going to be an increase in the interest rates for, you know, future mortgages, that's what the market will decide. But we need to have an executedable process. And the homeowner's bill of rights is enabling that process. Because the banks have a right to foreclose on if somebody defaults on their promise, making their mortgage payments on time. When someone is having a genuine reason for a delay in the payments or a few months that they are unable to pay because of a medical emergency or an employment issue, the loss of people not being able to stay in those homes is not good for the neighborhoods . When one home is foreclosed upon because of some kind of technicality, then that's not good. This process enables that, it preserves the value of the homes, and a homeowner who wants to stay in there, and it also prevents blighted neighborhoods. So of course, the market is going to decide as to what the industry is going to be, but I don't think it's going to skyrocket from what is now to about 15 or 20% in a year or two. FUDGE: And David, one more question for you, some people would say this legislation is coming too late. I mean, the state's default rate dropped to the lowest level in five years this spring. Is this too late? LAGSTEIN: It's not too late. And there was actually a new report that came out, which updated your quote from earlier. It's actually 700,000 borrowers who are in danger of foreclosure in the state. Our best estimate is there's 50,000 homeowners that are in San Diego County. Upon the worst of the crisis is over, but the impact is certainly being felt every day by our economy. And talk to these 700,000 homeowner, a lot of families certainly want relief, the ability to get a fair shake from the banks. So this is probably later than it should be, but it's certainly right on time for the homeowners who are trying to get a fair shake from their bank.
California would become the first state to write into law much of the national mortgage settlement negotiated this year with the nation's top five banks, and expand it to all lenders, under wide-ranging legislation state lawmakers approved Monday.
Majority Democrats sent the homeowner protection package to Gov. Jerry Brown despite opposition from business and lending organizations and most Republican legislators.
The Assembly approved the legislation on a 53-25 vote, and the Senate followed by voting 25-13.
The legislation would require large lenders to provide a single point of contact for homeowners who want to discuss loan modifications. It would prohibit lenders from foreclosing while the lenders consider homeowners' request for alternatives to foreclosure. And it would let California homeowners sue lenders to stop foreclosures or seek monetary damages if the lender violates state law.
The protections would benefit all California homeowners, not just those whose mortgages are with the five banks that signed the national settlement in February. And many of the restrictions would become permanent, while those in the nationwide agreement will end after five years.
It applies to all owner-occupied residences, but not commercial or rental properties.
Jose Vega drove 70 miles to Sacramento with his two young children to lobby lawmakers to pass the legislation after he spent three years battling to keep his home in the San Francisco-area city of Pittsburg.
In November 2009, he said, he found a trustee sale notice posted on his door 16 days after he was placed in a loan modification program. He was put into another modification program in the spring of 2010, only to have the bank again begin foreclosure proceedings.
Vega, 52, eventually kept his home after filing for bankruptcy and getting help from the office of Democratic U.S. Sen. Dianne Feinstein. Now he and his family owe $466,000 -- including the bank's legal fees -- on a home he said is worth about $200,000.
"I'm not asking for a handout. All I'm saying is, you created this mess, let's work something out," said Vega, a member of the Alliance of Californians for Community Empowerment. "Hopefully, California will lead the way so other states will follow."
Attorney General Kamala Harris said an estimated 700,000 California homeowners now are facing foreclosure, up from 500,000 in previous projections.
"They will now have a system that will offer them transparency and fairness," Harris said after the vote.
She helped negotiate the February settlement that requires Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. to pay $18 billion in penalties to California homeowners.
Harris said the California legislation is the next step in reforming the industry, even as a special task force of California Department of Justice prosecutors continues investigating mortgage abuses.
Key portions of her original proposal to write the settlement into state law were stalled by opposition from some of her fellow Democrats in the Legislature, until the right to sue banks and other measures were significantly narrowed.
"This legislation can be the catalyst not only for a recovery of California's real estate market, but a catalyst across the nation as borrowers everywhere will demand the same protections given to California borrowers, the same protections given to our families," said Democratic Assemblyman Mike Feuer, a member of the conference committee that negotiated the bill. "Those protections boil down to this: They ought to be treated fairly, they ought to be treated consistently."
Lenders' organizations joined by the California Chamber of Commerce said in a letter to lawmakers Friday that the final legislation is an improvement, though they still fear it will "encourage frivolous litigation" by borrowers who cannot realistically afford to stay in their homes.
The lending industry cited a study it commissioned by Beacon Economics, a Los Angeles-based research firm. It echoes industry arguments that letting homeowners sue their lenders, even in limited circumstances, will delay foreclosures and increase lenders' costs, potentially harming the shaky housing recovery and making it more difficult and costly to obtain mortgages.
The legislation can't address what lenders and opposing lawmakers said is the underlying problem: too many borrowers can't afford their payments.
"It's a mistake that will hurt this economy for years to come," said Republican Sen. Sam Blakeslee, a member of the conference committee.
Supporters of the bill say it still takes important steps.
"The point is ... not to launch an avalanche of lawsuits. What it's really about is having some meaningful accountability to ensure that servicers follow the rules," said Paul Leonard, director of the California office of the Center for Responsible Lending, a consumer group.
Previous efforts have repeatedly failed to clear the Legislature. Leonard said the national mortgage settlement and Harris' involvement are likely to make the difference this year.
Democratic Sen. Noreen Evans, who co-chaired the conference committee that negotiated the bill, said Brown's administration worked with Democrats on the legislation and has given every indication he would sign it into law. However, Brown declined to comment as he left the office of Senate President Pro Tem Darrell Steinberg moments before the vote.
The governor's office later issued a statement praising the legislation for establishing "important consumer protections that are long overdue" but stopped short of saying he will sign the bill.
The law would not take effect until Jan. 1, though Evans and Harris said they expect lenders would begin following the new rules immediately even if the penalties don't yet apply.