State lawmakers approved new mortgage protections for California homeowners Monday. The package of bills prevents banks from foreclosing on a mortgage holder who’s applied for a modification. Homeowner advocates say this will bring a lot of relief, while banks and realtors warn it’ll just make it more expensive to buy a home in California.
The California Homeowner Bill of Rights extends consumer protections agreed to in February by the nation’s five biggest banks as part of a national settlement. Attorney General Kamala Harris helped reach the settlement, which included $18 billion in relief for Californians who lost their homes.
"It was our intention at the time that we entered into that settlement that the work would not stop there," Harris said. Harris sponsored a handful of state bills that ban banks from filing a foreclosure notice when a homeowner is already trying for a loan modification.
The legislation also requires lenders to assign a specific person or team of people to work with the homeowner, so that person doesn’t get handed off to a different person every time they call. Martha Viramontes with ClearPoint Credit Counseling says those changes will make a difference.
"California’s distressed homeowners will now have the opportunity to have their financial situation fully evaluated for possible work-out solutions before the foreclosure process begins," Viramontes said. "And they are entitled to receive 'yes' or 'no' decisions from lenders, so this is a great, great win for California homeowners."
But lenders warn the changes needlessly delay foreclosures for people who ultimately can’t afford their mortgages.
"Half of all the trial modifications never make it to full modifications, and it can take a year to figure these things out," said economist Chris Thornberg. Thornberg says it’s a waste of time for lenders to wait a full year before they can start the foreclosure process.
"I think that if the homeowner which is going through the modification process can truly not meet the needs of the modification process, they should be foreclosed on immediately," Thornberg said. "I don’t think there’s anything wrong with that."
Thornberg says if California’s Homeowner Bill of Rights becomes law, it will make lenders more picky about lending in the future.
The bills now head to Gov. Jerry Brown's desk for approval. In a statement late Monday, Brown indicated he'll sign it.
“The Homeowner Bill of Rights will prevent banks from throwing Californians out of their homes while they are trying, in good faith, to renegotiate their mortgages. This bill establishes important consumer protections that are long overdue."
More information from a study conducted by research firm Beacon Economics, commissioned by the California Bankers Association, California Credit Union League, California Mortgage Bankers Association, MERSCORP Holdings Inc. and United Trustees Association:
This story has been updated.