A million foreclosures and four years after the housing crisis began, the California Legislature on Monday approved legislation intended to provide distressed homeowners with basic protections against lenders.
The bills, SB 900 and AB 278, head to Gov. Jerry Brown, who is expected to sign them, as he should. They offer safeguards that long should have been part of California law.
But once the measures take effect, legislators need to monitor them to ensure their actions don't have unintended impacts on the housing market, as banks, real estate agents and the California Chamber of Commerce have warned.
Pushed by Attorney General Kamala Harris, the so-called Homeowner Bill of Rights says banks cannot engage in the duplicitous practice of foreclosing on a home while simultaneously negotiating with the borrower over a loan modification.
The bills include eminently reasonable provisions saying lenders must provide distressed borrowers with a single point of contact, a specific bank officer or team of officers who would be familiar with the borrower's situation and could answer questions. That should help end the problem of lost paperwork, a recurring complaint among borrowers.
In a concession to small banks and credit unions, the legislation exempts lenders until they have foreclosed on 175 borrowers in a year.
The legislation reflects key points negotiated earlier this year by states' attorneys general and the Obama administration with the five largest mortgage issuers Bank of America, Wells Fargo, Citigroup, JPMorgan Chase and Ally Financial.
It extends those protections to Californians whose loans are serviced by other lenders, and provides state oversight an extra five years through 2018.
Only one Republican legislator voted for the bills. All the others, including all members who represent the Central Valley, where the foreclosure crisis has been the worst, voted against the measures.
Banks and Republicans complained that the bills would open the way for lawsuits by lawyers representing aggrieved homeowners. The bills would permit borrowers to seek treble damages for violations of the law for reckless and willful misconduct. Lenders also risk losing their license to operate.
The solution is simple: Treat borrowers fairly. To the extent that the legislation enhances homeowners' rights, they should have access to the courts. Judges will dismiss their suits if they are without merit.
Banks, real estate agents and the California Chamber of Commerce contend the legislation could delay foreclosures against people who engage in strategic defaults, in which borrowers owe more than their homes are worth and stop making payments, knowing they will be evicted at some point.
Harris deserves much of the credit for events leading up to the approval of the measures. When other attorneys general were prepared to sign off on a weak deal, Harris held out for more money and protections for California.
She realized that California is different from other states, including those that were hard hit by the foreclosure crisis.
Assuming Brown signs the measure into law, Harris, like the Legislature, should monitor the situation. She needs to make sure the law helps end the housing crisis and doesn't impede California's painfully slow recovery.