Guardedly Good News In California

Michael Belote

By Michael Belote, California Advocates, UTA California Lobbyist

California proudly, sometimes even defiantly, meanders to its own drummer.  While most of the rest of the country was turning more red in last fall’s elections, California became even more blue.  Democrats are now just two seats short of a two-thirds majority in each house, and they hold every statewide elected office.  And in various areas of public policy, California is the first, or only, state to enact far-reaching legislation.

California may be moving away from some states in the legislative approach to mortgage and foreclosure regulation.  For a number of years California has been layering program upon program in these areas, including regulation of high-cost “covered loans”, a requirement of a diligent attempt to contact borrowers prior to NOD, foreclosure delays absent a finding of a comprehensive modification program, and more. However, there is now strong evidence that key legislators believe that the limits of effective legislative action have been reached.  At what is basically the half-way point in the legislative process for 201, there is guardedly good news for UTA and our industry partners.

Consider the following:

• AB 406, which would prohibit balloon payments in adjustable rate loans on residential 1-4, failed passage in the Assembly Banking and Finance Committee by a vote of 0-8;
  
  
• AB 407, which proposes to prohibit all prepayment penalties on residential mortgages, was never heard in the Assembly Banking and Finance Committee prior to the May 13 deadline for all bills to be heard in policy committees;
  
  
• AB 643, which proposes a requirement of mandatory “prepurchase” debt counseling for all borrowers, and the establishment by state regulators of a prudent debt-to-income ratio for borrowers, failed passage in the Assembly Banking and Finance Committee by a vote of 0-7;
  
  
• AB 645, which proposes a fiduciary duty on mortgage brokers to outline the advantages and disadvantages of various loan options to borrowers, and requires brokers to notify credit reporting agencies if they place borrowers in loans less advantageous than they otherwise qualify for,  was similarly never heard in the Assembly prior to the policy committee deadline of May 13;
  
  
• AB 935, which proposes a $20,000 “foreclosure mitigation charge” as a condition of recording a notice of sale in certain residential foreclosures, failed passage in the Assembly Banking and Finance Committee on a vote of 4-4;
  
  
• AB 1321, which proposes mandatory recordation of all deeds of trust and assignments within 30 days of execution, and recordation of assignments no later than 45 days prior to NOD, was pulled from the hearing calendar in the Assembly Judiciary Committee and made into a two-year bill;
  
  
• SB 729, a far-reaching measure on loan modifications which is very similar to last year’s SB 1275, failed passage in the Senate Banking and Financial Institutions Committee on a vote of 3-3.  Twice!

Bear in mind that with overwhelming majorities in each house, Democrats also enjoy strong majorities on every policy committee in the Assembly and Senate. And every bill listed above is authored by a Democrat. In the recent past, uniform rejection of Democratic bills by Democratic committees would have been absolutely unthinkable.Clearly the message, delivered by UTA as part of a strong coalition of industry organizations is getting through: as bad as the real estate market is, further legislation limiting mortgage options and delaying foreclosures will not help California through the crisis.

The story is far from told, however. Rumors persist that the language from SB 729 will be amended into another bill later in the legislative session, or might even become part of budget negotiations this summer. Generally bills pass or fail as a result of legislative will, not because of a failure to meet legislatively-imposed deadlines, so if the mood changes in the Legislature there is always opportunity to resurrect some of the ideas that have been stalled. This is why vigilance is necessary, until the very moment of adjournment of session on Friday, September 9.