June 20, 2008
The California Senate Banking Committee bowed to industry today, killing all but one of the Assembly Democrats’ crucial bills designed to rein in abuses prominent in the sub-prime market and thereby eliminating the prospect of restoring responsibility and accountability to the mortgage market in California this year.
One bill, AB 1830 (Lieu, D-Torrance), was left standing, but had been stripped of key provisions at the urging of Chairman Machado and was reduced to a bill that merely authorized CA regulators to enforce weak federal regulations.
“California’s economy, current borrowers and future borrowers all lost today,” said Paul Leonard, director of the California office of the Center for Responsible Lending (CRL). “The Assembly handed the committee a solid package of bills that would have done much to safeguard Californians from another mortgage crisis, but the committee chose to preserve the status quo, and keep the rules that brought us the unmitigated foreclosure and credit crisis we are in today.”
CRL, along with a coalition of partners including ACORN, CALPIRG, the California Labor Federation, the California Reinvestment Coalition and Consumers Union, has pushed for reforms that would have provided strong protections to borrowers and returned the mortgage market to basic principles of responsible lending.
“California needs its legislature to pass common sense regulation of unfair lending practices,” said Kevin Stein, associate director of the California Reinvestment Coalition. “But today the Senate Banking Committee weakened and killed mortgage legislation, failed to prevent a foreclosure crisis from happening again in the future, and did nothing to help families who are currently struggling to make it.”
Members of the Senate Banking Committee, which includes representatives of some of California’s hardest-hit housing markets, rejected a number of bills that would have limited prepayment penalties; required lenders to evaluate a borrower’s ability to repay; established mortgage brokers’ fiduciary duty to borrowers; regulated mortgage servicers; required lenders to provide translated summary of loan terms to non-English speaking borrowers and prohibited involuntary waivers of legal protections.
“It’s baffling that even after 500,000 foreclosures in California, industry continues to defend the same lax lending rules that got us into this mess in the first place,” said Pedro Morillas, legislative advocate for CalPIRG. “Industry came out on top today, but we’ll continue fighting for reforms to prevent another mortgage meltdown from happening ever again.”
Committee Chairman Mike Machado (D-Linden) and Vice Chairman George C. Runner (R-Antelope Valley) have the dubious distinctions of representing Central Valley and Inland Empire regions that have borne the brunt of the foreclosure storm.
According to Foreclosure Radar.com, from October 2007 to March 2008, Machado’s district, which includes Stockton, Vallejo and Fairfield, had more than 10,000 Notices of Default (NOD) and foreclosures; Runner’s district, which includes parts of San Bernardino and Ventura counties, had more than 13,000 NODs and foreclosures.
“Knowing what we know now, maintaining the status quo is not an option,” said Norma Garcia, senior attorney at Consumers Union. “And to allow it to continue would not only be negligent, it would be a travesty.”