For the nearly two years that Kamala Harris has been California's Attorney General, she has made the fight against fraudulent foreclosures her signature issue. Now, largely due to pressure from business groups, legislators look like they may soon succeed in tanking her most ambitious plan yet to clean up the state's mortgage market.
Earlier this year, Harris began pushing for California to pass the "Homeowner Bill of Rights," a collection of six bills that would make significant changes in the way the state regulates mortgages.
Harris was scheduled to testify before the California Assembly's Senate Banking and Finance Committee on Monday; however, only moments before she was supposed to appear, both of the bills she was discussing were pulled by the committee chairman, Democrat Mike Eng of Monterey Park.
The sudden change reportedly prompted a chorus of catcalls from the assembled crowd.
The pair of laws Harris was scheduled to discuss aim to increasing protections for mortgage borrowers by prohibiting lenders from foreclosing on a property while simultaneously negotiating a loan modification on that property and also simplifies loan documentation by establishing a single, standardized contract for foreclosures and loan restructuring.
Other provisions in the bundle require banks to provide homeowners with a single point of contact during the loan modification process and levy a $25 fee on banks every time they register a default. Proceeds from the default fee would then go into a pool of money funding mortgage fraud investigations.
As part of the $25 billion settlement between the nation's five largest mortgage holders and the attorneys general of 49 states, in which Harris was a crucial player, the large institutions that hold nearly 30 percent of all mortgages in the state have already agreed to abide by some of these rules. However, that settlement expires in three years and Harris wants the rules to extend into perpetuity.
The banking industry strongly opposes the measures. The Sacramento Bee reports:
In letters to legislators, the state chamber said the measures amount to a "de facto moratorium on foreclosures" that would actually hurt the real estate market with a confusing new set of laws, squeeze credit for property purchases and trigger a wave of lawsuits.
The chamber also contends the bills are in conflict with federal standards and are an "extraordinarily restrictive and draconian" permanent response to temporary industry abuses.
Conversely, the bills have received strong support from civic leaders in San Francisco. "Too many San Franciscans have been devastated by the mortgage crisis and too many families have lost their homes due to deceiving banking practices right here in some of our most vulnerable communities," said San Francisco Mayor Ed Lee in a statement to the San Francisco Sentinel. "Thousands of foreclosures have happened and are happening in neighborhoods in our cities. I applaud the leadership of Attorney General Kamala Harris for standing up for families and using the powers of her office to protect homeowners from mortgage fraud and abuse."
Last week, the city's Board of Supervisors passed a non-binding resolution calling for a moratorium on all foreclosures in the city until additional protections, such as the ones in Harris's bills, are enacted.
An audit of 400 San Francisco foreclosures conducted by San Francisco Assessor-Record Phil Ting found that 84 percent were either fraudulent or missing crucial documentation.
"This matters because families facing foreclosures are entitled to know exactly who holds their loan and to see for certain that the foreclosure is justified," Ting wrote in a blog on the Huffington Post. "In one case, our audit showed a foreclosure initiated by a party that had no title to the property--and in a number of other cases, we found two competing claims to the title."
(Full disclosure: Aaron Sankin was briefly an unpaid intern on Harris's 2003 campaign for San Francisco District Attorney.)
Check out this video by legendary Sacramento Bee political reporter Dan Walters explaining how powerful business interests in Sacramento have had success blocking bills they don't like:
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