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AG wants mortgage, homeowner protections

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POSTED April 16, 2012 1:48 a.m.

SACRAMENTO  (AP) — California’s attorney general is seeking to build on a recent nationwide bank settlement over home foreclosures by lobbying state lawmakers to advance a package of mortgage-protection bills, which faces critical tests in legislative committees this week.

The proposals by Attorney General Kamala Harris would provide additional safeguards for homeowners while giving her office more freedom to investigate financial crimes.

Harris, a Democrat, has made combating mortgage fraud and protecting homeowners a centerpiece of her 16 months in office. She was instrumental in negotiating a settlement with the nation’s top five banks in February that will bring $18 billion in relief to California, one of the states hardest hit by the mortgage crisis.

More than 500,000 Californians have lost their homes to foreclosure since 2008, more than in any other state.

Her 11-bill package would ban some of the worst practices that contributed to the housing crisis. It would write the terms of the national agreement into state law and apply them to every lender.

“A lot of the reform that we’re talking about was agreed to by the banks in the national foreclosure settlement, but it only has a life of three years,” Harris said in a telephone interview. “Let’s not go back to the days of robo-signing. Let’s not go back to the days of having dual-track systems that confuse and kind of handicap people. Let’s learn from our mistakes.”

She plans to testify before legislative banking committees Monday and Wednesday as she promotes what she is calling the California Homeowner Bill of Rights. Other bills in the package also face their first committee hearings this week.

The banking industry is opposing the key elements in Harris’ proposals, including her core legislation to increase homeowners’ due process rights and to expand terms of the national settlement for all California homeowners.

The industry particularly objects to letting individual borrowers go to court if they feel they have been wronged. Allowing that would “result in a de facto moratorium on foreclosures,” the California Bankers Association said in a statement last week. Letting borrowers sue to halt foreclosures could “unduly delay the inevitable” and result in some homeowners being awarded monetary damages when they suffered no real financial harm.

“This just allows for an excess of litigation that is just going to stall progress in California and stall the housing recovery,” said Dustin Hobbs, spokesman for the California Mortgage Bankers Association. “You can guarantee that future loans would be expensive, more expensive than they are now. For some homeowners, that will price them out of the market.”

Harris responded that if lenders act properly to begin with, delinquent borrowers won’t be able to block a lawful foreclosure.

“Robo-signing certainly expedited things — that was the problem. ... There were homes that were foreclosed on that shouldn’t have been,” she said.

Although she has the backing of Democratic leaders who control the Senate and Assembly, previous efforts to reform the mortgage industry have failed in the Legislature or been rendered toothless.

Enactment of the bills cannot come too soon for Ethan Hoff.

The 63-year-old retired in 2010 after 34 years as a Sacramento-area school teacher and administrator. He soon had to go back to work when his wife became disabled and her small business failed. He applied in August for a mortgage modification program offered by his lender, Wells Fargo, after he fell behind on the property taxes he owes on his home in the Sacramento suburb of Carmichael.

“I’ve had to deal with 25 different people and I’ve made over 51 calls and sent over 22 faxes,” Hoff said. “My frustration is, every time I call I get a different person.”

Hoff plans to testify in favor of a bill that would require lenders to provide a single point of contact for borrowers who want to discuss foreclosures or refinancing. Wells Fargo provided a single contact to Hoff, but he said the employee is never available.

“I suspect that most people give up on this process because they make it so difficult,” Hoff said. “The banks say they want to work with customers, but I just don’t see that.”

Wells Fargo spokeswoman Vickee Adams did not return two telephone messages left with her assistant.

The 11 bills in the package address six separate proposals. Five are contained in duplicate Assembly and Senate bills. The package includes:

— AB1602 and SB1470, which would extend to all California homeowners many of the protections contained in the national banking settlement. They would address the practice known as a “dual-track foreclosure” by prohibiting lenders from filing notices of default while they are also considering alternatives to foreclosures. The bills also would require lenders to prove to homeowners that they have a right to foreclose on the property and would create a new Office of Homeowner Protection to aid borrowers. Banking associations are opposed.

— AB2425 and SB1471, which would increase borrowers’ due process rights. They would require lenders to provide a single point of contact starting on July 1, 2013, for borrowers who want to discuss foreclosures or refinancing. The bills would increase penalties for banks that sign off on foreclosures without properly reviewing the documentation, a process known as robo-signing. Also, borrowers could act on their own to challenge foreclosure proceedings in court. Banking associations are opposed.

— AB2314 and SB1472, which would give cities more ability to fight neighborhood blight from vacant houses. The measures increase penalties against the owners of the blighted properties and let local governments charge the owners for the cost of cleaning up the properties. Banking and mortgage groups oppose the penalty increases.

— AB2610 and SB1473, which would give renters more notice before they have to vacate a foreclosed home. Banking and mortgage associations want more limits on which renters would qualify and how long the restrictions would be in effect.

— AB1763 and SB1474, which would allow the attorney general to convene a special grand jury to investigate financial crimes that cross county lines and involve multiple victims. Banking organizations have taken no position.

— AB1950, which would give prosecutors four years to bring charges in foreclosure-related crimes, up from the current one year. The bill also would impose a $25 fee on each notice of default filed by a lender, with the money going to the attorney general’s office for investigation of mortgage-related crimes. Banking and mortgage associations oppose what they say would be a new $25 tax.

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