In the wake of the housing market collapse that resulted in a wave of mortgage default and foreclosure throughout the country, one of the hardest-hit states recently passed legislation that could prevent an event of this magnitude in the future.
Lawmakers in California passed the bill that would specifically ban mortgage lenders from starting the foreclosure process while loan renegotiations were in progress. In addition, automatic bulk repossession approval, known as "robo-signing," is now also illegal throughout the Golden State.
"[Homeowners] will now have a system that will offer them transparency and fairness," California attorney general Kamala Harris told the Associated Press.
Mortgage records indicate that there are currently an estimated 700,000 homeowners throughout the state facing foreclosure. This is a significant increase from previous projections, which anticipated only 500,000 borrowers to be dealing with a home repossession by the middle of 2012. It's hoped that these new provisions could give distressed households the time they need to find alternative options.
The law would also require lenders to give borrowers a single point of contact at the company to discuss their individual home loans. Previously, many customers claim they felt navigating telephone systems to get in touch with the proper professional was discouraging, and prevented them from taking quick action when they were facing financial hardship that threatened their status as homeowners.
Meanwhile, Governor Jerry Brown has yet to publicly announce if he supports the new local mortgage laws, but experts feel it is very unlikely that he will veto the legislation.
However, the bill did not come without some resistance. The measure has been criticized by a number of banks, mortgage providers and even real estate companies. They feel the changes could impose unnecessary burdens on their companies and subsequently hurt the growth of their books of business.
Additionally, critics argue that the anti-foreclosure measures may only just delay the process, rather than prevent it. By slowing the repossession timeline, it could dampen the speed of the real estate recovery throughout the state.
In a letter to California lawmakers prior to the passing of the legislation, these companies specifically said they were concerned that the bill would "encourage frivolous litigation" from distressed borrowers that can no longer to stay in their homes. As a result, the measure was amended to only offer protection to first mortgages.