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Visions of Days Gone By, Or Reinventing the Wheel

Michael Belote

In early January, Governor Gavin Newsom presented the Legislature with his proposed budget for fiscal year 2020-2021, which commences on July 1.  Building upon nearly a decade of explosive growth in the economy and stock market, Governor Newsom proposed a $222 billion general fund spending plan, with very significant new investments in early childhood education, health care for the undocumented, and much more.

Then reality intervened.  Ironically, even as the Governor was crafting his budget plan, the coronavirus was spreading in Wuhan and potentially other foreign cities.  What has followed hardly needs repeating: from record low unemployment to record high unemployment, from budget surpluses to budget deficits, from tight markets for commercial space to predictions that large numbers of workers may never come back to the office.

This all brings to mind echoes of the Great Recession.  Throughout those long years, UTA participated in intense legislative negotiations which led to the Homeowner’s Bill of Rights. Rightly or not, policymakers concluded that “HOBR” contributed to stabilizing California’s housing market.  Of course, few legislators involved in drafting the package will ever concede that the largest factor in the real estate recovery was a turn-around in the economy.

While no one knows how long the coronavirus will batter the state, national and world economies, there are distinct differences between the Great Recession and the current crisis.  Then, large numbers of homeowners received 125% loans with little or no documentation of income or assets, leaving them with negative equity.  Now, homeowners mostly have equity and Realtors report that the residential market seems to holding up reasonably well. Then, again rightly or wrongly, subprime lenders were blamed for much of the problem; now, if we can agree on anything, it is that no one is to blame for the hidden killer that is COVID-19.

But the point is, the underlying fundamentals in the economy were far different in the Great Recession than they are now.  It is too early to draw conclusions, but it appears that requests for forbearances are actually declining, and in the main, consumers seem to be keeping up with other large obligations such as car payments.

Very few current California legislators were in office when HOBR was created, and they want to act.  In combination with a very broad coalition of business groups, UTA is arguing that there is no evidence that the very prescriptive elements of HOBR will not work to keep people in their homes when they reasonably can.  The current discussions very much have the feeling of reinventing the wheel, although among UTA types, reportedly only Marty McGuinn was actually present for the invention of the wheel.

The following key bills of interest are pending in the California Legislature:

  • – AB 2501 (Limon): This is a massive measure covering mortgages, automobile finance, payday lenders and PACE assessments. On the mortgage side, the bill could require forbearance for more than a year with no documentation of borrower need, with the added requirement that lenders/servicers advance property taxes and insurance. The author is the chair of the Assembly Banking Committee, which approved the bill in spite of expressions of deep reservations by members of both parties. We expect significant amendments in the coming days and weeks, likely with a big fight on the floor of the Assembly.  Ironically, the bill has no urgency clause, meaning if passed, it will not take effect until January 1, 2021.  Adding an urgency clause would subject the bill to a 2/3 vote requirement, far harder to obtain.

 

  • – AB 828 (Ting): Prohibits any action to foreclose, including the recordation of a notice of default, until the end of a state or local declaration of emergency related to COVID. Also contains similar restrictions on unlawful detainer.  The current language of AB 828 results from “gutting and amending” out the prior, unrelated subject of the bill.  Because the bill was already in the Senate, it is unlikely to be heard until mid-July, so its prospects are uncertain.

 

  • – SB 939 (Wiener): Prohibits unlawful detainer in commercial tenancies, for those entities which meet the bill’s definition of “eligible COVID-19 impacted commercial tenant.” Imposes various other obligations on commercial landlords, but does not contain any foreclosure moratoria.

 

  • – SB 1079 (Skinner): In an attempt to address the phenomenon of “corporate rental neighborhoods”, prohibits purchasers at trustee’s sales from buying more than three properties.  Also prohibits “bundling” of properties at sales, and provides very significant increases in potential fines for not maintaining properties following foreclosure.

 

  • – Budget Trailer Bill on Department of Business Oversight: This proposal does not yet have a bill number, because it is intended as a “trailer bill” to the 2020-2021 state budget. Trailer bills are simply bills which implement provisions of the budget act itself.  This proposal would re-craft the current Department of Business Oversight into the Department of Financial Protection and Innovation, with virtually identical powers to the federal Consumer Financial Protection Bureau.  The bill purports to require registration and oversight by the new department over anyone offering financial products or services in California, but exempts currently licensed entities operating within the scope of their licenses.  Because trustees have no state license, they would almost certainly fall with the provisions of the proposal.

 

Taken together, these proposals easily will make 2020 the biggest year for UTA in the California Legislature since the Great Recession.

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