Foreclosure-Prevention Efforts Stall in California

Efforts to ease California's foreclosure woes, among the worst in the nation, are running into roadblocks at the state Capitol.
by | May 24, 2012

By Marc Lifsher and Alejandro Lazo, Los Angeles Times

Efforts to ease California's foreclosure woes, among the worst in the nation, are running into roadblocks at the state Capitol.

A rare legislative conference committee called to rescue a pair of stalled foreclosure-prevention bills is bogged down in marathon sessions. Meanwhile, Gov. Jerry Brown is pushing to use some of California's share of the $25 billion national mortgage settlement to plug holes in the state's budget, dismaying housing activists.

Since the start of the real estate bust, foreclosures have been a persistent drag on the state's homeowners and economy. Experts see reducing foreclosures as key to getting the housing market back on track.

How to do that remains a matter of intense debate. State Attorney General Kamala D. Harris and advocacy groups have called for tougher reforms and more help for borrowers, while the banking lobby contends that lawmakers shouldn't intervene with what appears to be a market recovery.

The conflict over the foreclosure bills is a classic David and Goliath political struggle, said Derek Cressman, western states director for Common Cause, a government watchdog group.

"The underlying reality is that the banks and the mortgage brokers have the wherewithal to make significant campaign contributions," he said. "That puts the thumb on the scale."

The committee, with three members from the state Senate and three from the Assembly, started taking testimony last week from dozens of witnesses, beginning with Harris, chief proponent of an initiative she has dubbed the Homeowner Bill of Rights.

Harris wants new laws to lock in some of the reforms she and other attorneys general secured from five mega-banks as part of a national legal settlement in February. Taking into account credits designed to encourage the banks to make payments to homeowners, California's share of the settlement could climb to as high as $18 billion.

"This bill of rights is simply about common sense reform and about bringing transparency for an otherwise confusing and daunting system," Harris said.

Banks, loan servicers and allies in the real estate industry, who defeated similar legislation in the last two years, fear that Harris' proposals go too far when the housing market is on a modest upswing.

Fewer California homeowners are falling behind on their mortgages, and foreclosures, though still high, are at their lowest levels since 2008, according to industry surveys released this week. Nearly 354,000 California mortgages are delinquent, according to the Mortgage Bankers Assn.

The California Bankers Association stressed that it supports "meaningful consumer protections," it's cautioning that new legislation must avoid doing "long-term damage to the marketplace" that would make it harder for borrowers to get low-cost mortgages.

Large banks are pushing back against a Harris proposal to give homeowners the right to sue when not all required steps in foreclosure actions are taken. They also oppose a requirement that they delay foreclosures when borrowers have asked for a loan modification to lower their monthly payments.

Banks are a powerful lobby in Sacramento. They made nearly $500,000 in campaign contributions to legislators during the 2009-10 session, according to Maplight.org, a nonpartisan group that tracks political money.

The banks' complaints gained weight this week when the federal government's chief home-loan regulator warned committee members that some of Harris' proposals are too broad and could lead to more homeowner lawsuits.

Bank opposition isn't Harris' only problem. She also faces an attempt by Brown to take $410 million that California received as part of the national settlement.

Harris has said she would spend the money on housing counseling and legal services for low- and moderate-income people.

Brown wants to use the cash to trim a $16-billion deficit in his proposed 2012-13 fiscal year budget. He would backfill existing housing fraud prevention and anti-discrimination programs, whose funding would otherwise be cut, and make interest payments on housing-project bonds.

Harris' office has argued that housing counselors and legal services would help ensure borrowers facing foreclosure would benefit from the mortgage settlement. Those groups have said demand for their services has surged.

Housing advocates have been closely watching how California will spend the $410 million it received from the banks given Harris' profile in the talks, that it was the largest cash payment to a state and the sheer size of California's mortgage market.

Before Brown announced he wanted to use the funds for other purposes, the affordable housing group Enterprise Community Partners had found that only 27 states were putting all of their settlement money toward housing initiatives.

"We appreciate that the governor is grappling with huge deficits and major financial challenges," said Jeff Schaffer, vice president for the group. But "we find it problematic if those resources are going to be diverted."

In a statement, executives of three major providers of legal services _ Public Counsel Chief Executive Hernan Vera, Legal Aid Foundation of Los Angeles Executive Director Silvia Argueta and Bet Tzedek President Sandy Samuels _ argued that Brown should rethink taking the funds.

"People at risk of foreclosure need help today, and that's what housing counselors and legal services are in the best position to do," they wrote. "Spending millions just to fill a budget deficit isn't going to help homeowners to stay in their homes."

Legislative leaders said they're unlikely to prevent Brown from taking the settlement money, given all the cuts to education, health and welfare programs that they're trying to stave off.

"It's a priority, but I don't know at this point" if it can be saved, said Senate President Pro Tem Darrell Steinberg, D-Sacramento.

Still, Steinberg predicted that the squabble over funding won't stop efforts to find a compromise.

(c)2012 the Los Angeles Times

Join the Discussion

After you comment, click Post. You can enter an anonymous Display Name or connect to a social profile.

More from Housing