The national settlement with the Big 5 banks (Citi, Wells Fargo, Bank of America, Chase and Ally) has provided momentum in California to remedy deceptive housing practices and clear the housing market efficiently.
California Attorney General Kamala Harris has sponsored a package of bills, the Homeowners Bill of Rights, that would codify in state law the national settlement and apply it to all firms that service mortgage loans in California.
This week that package is at a key negotiating moment in the legislative process. Harris should stand strongly behind key elements, and the public should support her.
A six-member Legislative Conference Committee on the California Foreclosure Crisis has conducted nearly 20 hours of hearings and issues have crystallized.
Fortunately, much of Harris' proposal has proved non-controversial:
Tenant rights: Requiring purchasers of foreclosed homes to give renters at least 90 days before starting eviction proceedings.
Grand juries: Allowing the attorney general to use special grand juries to prosecute multicounty mortgage crimes.
Statute of limitations: Extending the statute of limitations on mortgage-related crimes to three years.
Blight: Owners of blighted foreclosure properties would still face fines. The original legislation called for $5,000 per day fines: that has since been amended to extend the current $1,000 fine beyond the sunset date of Jan. 1, 2013. .
So the joint conference committee has two bills left:
Ending "dual track" abuses (SB 900, by Sen. Mark Leno, D-San Francisco). Too often banks initiate foreclosure proceedings or do a foreclosure sale at the same time as they are processing a loan modification. Too many families unnecessarily lose their homes that way.
Requiring a "single point of contact" so borrowers don't get the runaround and banning "robosigned" documents (AB 278, by Assemblyman Mike Eng, D-Monterey Park).
The hang-up is on how to enforce the provisions.
The Big 5 banks want to be exempt since they signed the national settlement. Not a chance. The law should apply to all lenders.
Lenders also want the bills to sunset with the end of the national settlement, in three years. Not a chance. These consumer protections need to be long-lasting.
Lenders have been pressing largely for voluntary compliance over a robust enforcement mechanism. Yet we have already seen large numbers of foreclosures that violate existing foreclosure laws. Enforcement is key.
Given the limited enforcement resources of the state, the option of choice has been to allow individuals to bring cases to court a so-called "private right of action." The aim is not to spur lawsuits, but to provide a real incentive for lenders and servicers to comply with the law. There have to be consequences for wrongful foreclosure sales.
Sen. Ron Calderon, D-Montebello, is the swing vote on the conference committee. He has said he is committed to crafting a bill that "includes a strong enforcement mechanism, such as giving victims the right to sue, to ensure that families do not continue to fall through the cracks." He and the conference committee should stand by that.
Without enforcement, foreclosure laws are a paper tiger.