California lawmakers approved legislation Monday hailed as the nation's most comprehensive push to strengthen homeowner rights since the housing meltdown, acting despite opposition from the banking and finance industry.
The legislation sent to Gov. Jerry Brown's desk would make California the first state in the nation to put into law the key terms of an $18 billion national mortgage settlement reached with five major banks, extending them to additional lenders.
"I think that this legislation is going to be a catalyst for a change across the country," said Assemblyman Mike Feuer, D-Los Angeles, a member of the committee that drafted the bill. "Because now every resident of every state is going to demand of their elected officials the same protections that we're delivering for Californians today."
The proposal, which would take effect in January, would ban lenders from engaging in "dual tracking" by starting or continuing foreclosure proceedings during loan modification negotiations. It would prohibit the use of robo-signed documents to speed up the foreclosure process and require that large institutions provide borrowers with a single department or group of employees to deal with their lending issues.
Supporters say those provisions, as well as the option to take legal action against misdeeds by the banks that go unresolved, would help keep Californians with sufficient means in their homes.
"We gave those families some promise that they can be in a system that allows them a fair opportunity to be the responsible homeowners that they want to be, so that they can keep that home and the shelter where they raised their children, that place where they expect to retire and to live with dignity," said Attorney General Kamala Harris, who pushed for the bill as part of a package of foreclosure relief legislation.
It is unclear how many of the estimated 700,000 Californians currently going through the foreclosure process would benefit from the law's protections. Harris, who was involved in negotiating the national settlement, said she believes "informed" homeowners would be able to take advantage of the law come January and hopes that banks would proactively implement the bill's provisions sooner.
Monday's vote came less than a week after Brown signed a state budget that diverts much of the money California received under the national settlement to provide relief and homeowner assistance. Harris said last week that while she had concerns about the shift, she would be creative in finding other ways to help.
The language approved Monday was crafted by a Democratic-controlled two-house conference committee created after opposition from banks and business interests threatened to derail an earlier, more far-reaching proposal. Representatives from a coalition pushing for the changes said that while the legislation provides more limited protections than they first sought, they were happy to see several key elements make it into the final language.
"It's good enough, and it's probably much better than good enough," Rick Jacobs, chair and founder of Courage Campaign, said at a news conference before the vote.
While Democrats framed the final product as a compromise that reflects months of negotiations, the financial industry remains opposed to the bill. A memo to members signed by a coalition that includes the California Bankers Association, the California Chamber of Commerce and the California Financial Services Association called for more work on the proposal, saying the current provisions "leave several major issues unaddressed and fail to focus remedies on truly injured borrowers."
Republicans in the Senate also requested more time, voicing concerns about provisions allowing borrowers to take legal actions against lenders and win payment of attorneys fees.
"This will be a field day for the trial attorneys," said Sen. Doug LaMalfa, R-Richvale. "That doesn't serve homeowners. That doesn't serve regenerating the housing market. It doesn't help."
Some Democrats acknowledged that more work could be done but said the current version will go a long way to help stem the tide of foreclosures in California.
"Is this bill absolutely right in every aspect? It may need adjustments as we move forward," said Assemblyman Sandré Swanson, D-Alameda. "But it's important for us to understand that doing nothing is not an option. We must make sure that we protect the American dream."
Assemblyman Tim Donnelly, R-Twin Peaks, countered that the bill allowed government to go too far in controlling private industry.
"There are worse things in the world than losing your home," Donnelly said. "I know that sounds tough. But it isn't government's responsibility to guarantee that everyone has a home. That is not the American dream."
The Democratic governor hasn't said directly whether he would sign the legislation, but he released a statement praising the measure.
"This bill establishes important consumer protections that are long overdue, and I commend Attorney General Kamala Harris for her determined pursuit of these changes," he said.