California Senate Passes Key Mortgage Bill
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The California Senate passed the first major bill that is designed to help prevent more home foreclosures and it is being sent to the governor. Gov. Schwarzenegger is expected to sign the measure into law.
The bill would require lenders to give homeowners earlier and extensive warning that their home loans were heading in to default. The bill will take effect immediately upon Gov. Schwarzenegger's signature.
The Los Angeles Times reports that a third provision on the bill, that is more important than it might sound, requires lenders to maintain property that is sitting empty after a foreclosure. In effect, the provision will curb lenders from immediately foreclosing on a person's mortgage, and prompt the lender -- or at least give some moderate incentive to the lender -- to work out a deal with the borrower.
Senate President Pro Tem Don Perata (D-Oakland), who authored the bill, said, "SB1137 will make a difference right away [. . .] This legislation is an important piece of the puzzle of how to best protect California homeowners and communities from the fallout from the nation's mortgage crisis," (Los Angeles Times, 7/3/08).
The "Mortgage Default Warning Bill" is an excellent first step by the state Senate to combat the foreclosure crisis that has hit California very hard (one of four states with the most foreclosures over the last year; Arizona, Florida and Nevada are the other three). State Assembly Speaker Karen Bass said that Wednesday's passage of the foreclosure-prevention bill would create momentum to resurrect a handful of related measures that were killed in the Senate two weeks ago. According to Bass, there are "an effective package of bills to submit to the governor in August."
There is one more key bill that might pass as well in August. Assemblyman Ted Lieu (D-Torrance) seeks to prohibit stated-income loans, which allow people to qualify for mortgages without verifying their income or if they'd even be able to make the monthly payments. Also in Lieu's bill is a provision that would ban less-than-interest-only loans or "teaser rate" loans/payments. These loans are essentially negative amortization loans, however, on the TILA disclosure forms, this is not stated; a violation of the Truth in Lending Act.