(September 2, 2010) A California Chamber of Commerce-opposed “job killer” bill that sought to make substantive statutory changes to foreclosure law and residential loan modification efforts, failed to pass off the Assembly Floor during the final day of session.
SB 1275 (Leno; D-San Francisco), would have hindered the recovery of the residential construction industry by reducing the availability of credit due to delays in resolving delinquent loans by requiring lenders to determine a borrower’s eligibility for a loan modification prior to the filing of a notice of default.
Delaying California’s Recovery
This measure continues a trend of delaying or stretching out the foreclosure process by requiring a lender/servicer, among other things, to determine a borrower’s eligibility for a loan modification or other foreclosure avoidance efforts before filing a notice of default.
CalChamber’s primary concern with the bill is its potential to have a negative impact on the availability of credit in California and thus further delaying recovery of the state’s crippled construction industry and its many supporting industries. California’s economic recovery is already lagging behind the rest of the nation. This sluggish recovery in California will only be exacerbated by measures that unnecessarily expand the foreclosure process and further delay recovery of the housing market.
The banking industry had argued that the bill would allow lawsuits to be brought against lenders for technical violations and could delay the foreclosure process even if owners were ineligible for a modification. They said that federal rules have evolved and could change again, potentially making SB1275 outdated and creating a conflict.
New York this year approved laws that give the state attorney general permission to sue lenders for repeatedly failing to consider loan modifications in a timely manner and for foreclosing during the modification process.
In California, the proposed law was approved by the state Senate and three Assembly committees.
Mitigating California’s Mortgage Crisis
Furthermore, the Legislature has appropriately responded over the past several years to help mitigate California’s mortgage crisis. Members of the financial services industry have successfully worked collaboratively with policymakers, consumer groups, and members of the administration to enact meaningful reforms designed to assist struggling borrowers. These efforts include, but are not limited to, SB 1137 (Perata; D-Oakland), AB 1160 (Fong; D-Cupertino), and AB 260 (Lieu; D-Torrance). Each of these measures involved good faith negotiations among interested parties, conducted over a period of months to ensure the outcome would be thoughtful public policy. More specifically, in 2008, industry members spent months collaboratively negotiating on SB 1137. The changes proposed in SB 1275 dramatically change the pre-foreclosure and foreclosure notice and outreach requirements enacted by SB 1137.
SB 1275 exemplifies an overly complicated formula that will be layered on top of recently enacted borrower outreach efforts to further frustrate and prolong existing foreclosure and loss mitigation efforts. CalChamber believes the measure will add to the complexity of navigating these processes for loan servicers, thereby creating a series of procedural traps that will lead to ever-increasing litigation. How this measure interacts mechanically and chronologically with recent state and federal regulatory and statutory changes is unclear. The lack of clarity will result in compliance hurdles and a detrimental distraction from lenders’ efforts to assist their customers.
Unnecessary Bill
Given recent changes to President Obama’s and the U.S. Treasury Department’s Home Affordable Modification Program, CalChamber believes that SB 1275 is unnecessary and may conflict with federal programs. At a minimum, SB 1275 continues a trend of delaying or stretching out the foreclosure process. This will delay economic recovery, further frustrate local governments struggling with properties in disrepair while continuing the trend of reduced property tax revenue for local governments, and will artificially sustain depressed property values.
Key Votes
SB 1275 failed to pass the Assembly Floor on a vote of 30-36.
The vote Monday was largely partisan, with nine Democrats voting no. All 12 Assembly members who did not vote were Democrats.
Ayes: Ammiano (D-San Francisco), Arambula (I-Fresno), Bass (D-Los Angeles), Beall (D-San Jose), Brownley (D-Santa Monica), Caballero (D-Salinas), C. Calderon (D-Montebello), Carter (R-Rialto), Chesbro (D-North Coast), Coto (D-San Jose), Davis (D-Los Angeles), Eng (D-Monterey Park), Evans (D-Santa Rosa), Feuer (D-Los Angeles), Fong (D-Cupertino), Hayashi (D-Hayward), Hill( D-San Mateo), Huffman (D-San Rafael), Jones (D-Sacramento), Lieu (D-Torrance), Lowenthal (D-Long Beach), Ma(D-San Francisco), Monning (D-Carmel), Nava (D-Santa Barbara), Perez (D-Los Angeles), Ruskin (D-Redwood City), Saldana (D-Dan Diego), Skinner (D-Berkeley), Torlakson (D-Contra Costa), Yamada (D-Davis).
Noes: Adams (R-Hesperia), Anderson (R-El Cajon), B. Berryhill (R-Ceres), T. Berryhill (R-Modesto), Buchanan (R-Alamo), Conway (R-Tulare), Cook (R-Yucca Valley), DeVore (R-Irvine), Fletcher (R-San Diego), Fuentes (D-Sylmar), Fuller (R-Bakersfield), Gaines (R-Roseville), Garrick (R-Carlsbad), Gatto (D-Burbank), Gilmore (R-Hanford), Hagman (R-Chino Hills), Harkey (R-Dana Point), Hernandez (D-West Covina), Huber (D-El Dorado Hills), Jeffries (R-Lake Elsinore), Knight (R-Antelope Valley), Logue (R-Linda), Miller (R-Corona), Nestande (R-Palm Desert), Niello (R-Fair Oaks), Nielsen (R-Gerber), Norby (R-Fullerton), M. Perez (D-Coachella), Silva (R-Huntington Beach), Smyth (R-Santa Clarita), Solorio (D-Anaheim,), Strickland (R-Thousand Oaks), Torres( D-Pomona), Torrico (D-Fremont), Tran (R-Garden Grove), Villines (R-Fresno).
Absent, Abstaining, Not Voting: Block (D-San Diego), Blumenfield (D-San Fernando Valley), Bradford (D-Gardena), De La Torre (South Gate), De Leon (D-Los Angeles), Furutani (D-South Los Angeles County), Galgiani (R-Stockton), Hall (D-Los Angeles), Mendoza (D-Norwalk), Portantino (La Canada Flintridge), Salas (D-Chula Vista), Swanson (D-Alameda).
Staff Contact: Robert Callahan