Inspired by the national attorney general mortgage settlement, California has passed a landmark foreclosure law that Governor Brown is expected to sign within days. Here are 3 reasons why the rest of the country will be watching the Golden State in the months and years ahead:
- No “Dual Tracking” The California law is designed to help homeowners enjoy real relief from loan modifications, not just anxiety and frustration. Lenders will not be able to rush through a foreclosure process at the same time they ask for endless packages of tax returns, paystubs, bank statements, utility bills and the like. The loan modification process will need to be completed before the lender can foreclose.
- No robo-signing This practice of lenders’ auto-signing foreclosure documents without any review before a foreclosure sale scandalized the mortgage world and was a key motivator for the attorney general settlement. Private homeowners would have the right to sue lenders if they were damaged by robo-signing.
- No processor runarounds Lenders will have to assign a single person to any loan modification file, who will be the homeowners’ point of contact. This rule alone may help reduce the considerable loan modification stress.
The law is only applicable to owner-occupied first mortgages.
Loan modifications are certainly a mixed bag. A recent TransUnion study showed that six out of 10 homeowners who received a loan modification stopped paying their mortgage again after 18 months. This study did not include statistics to address the many more homeowners who did not qualify for loan modifications. The question is: do loan modifications provide any real relief to borrowers? Perhaps the California law will finally force the mortgage industry to give meaningful focus on this process. The rest of the country will be watching.