BILL ANALYSIS
AB 1639
Page 1
ASSEMBLY THIRD READING
AB 1639 (Nava, Bass and Lieu)
As Amended May 28, 2010
Majority vote
JUDICIARY 7-3 BANKING & FINANCE 7-5
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|Ayes:|Feuer, Brownley, Evans, |Ayes:|Eng, Monning, Fong, |
| |Torlakson, Lieu, Monning, | |Mendoza, Nava, Ruskin, |
| |Nava | |Lieu |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Tran, Hagman, Knight |Nays:|Niello, Gaines, Fuentes, |
| | | |Harkey, Tran |
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APPROPRIATIONS 12-5
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|Ayes:|Fuentes, Ammiano, | | |
| |Bradford, | | |
| |Charles Calderon, Coto, | | |
| |Davis, | | |
| |Monning, Ruskin, Skinner, | | |
| |Solorio, | | |
| |Torlakson, Torrico | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Conway, Harkey, Miller, | | |
| |Nielsen, Norby | | |
| | | | |
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SUMMARY : Establishes a facilitated Mortgage Workout Program
(MWP) for borrowers facing foreclosure whereby a borrower could
request to participate in conciliation sessions with their
lender to examine mortgage loan modification options or
foreclosure alternatives. Specifically, this bill :
1)Provides that a mortgagee, trustee, beneficiary, or authorized
agent shall inform a borrower via certified mail accompanying
a notice of delinquency and notice of default that the
borrower may request to participate in the MWP. The notice
shall include the telephone number, email address, and
Internet Web site for the administrator.
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2)Provides that the provisions of the MWP apply to primary
residences only.
3)Provides that eligibility for the MWP is limited to loans that
originated prior to January 1, 2009, and for which the unpaid
principal balance of the mortgage is no more than $729,750.00.
4)Provides that there is no obligation to offer the MWP if the
mortgagee, trustee, beneficiary, or authorized agent has
either written evidence documenting a personal face-to-face
meeting with the borrower for the purpose of discussing loan
modification or foreclosure avoidance options; or written
evidence documenting that the borrower has been offered a loan
modification that would establish a ratio of the borrower's
housing-related debt to the borrower's gross income, as
specified, or if the borrower has filed a petition for
bankruptcy, and the proceedings have not been finalized.
5)Allows a borrower 30 days from the receipt of the delinquency
notice to request participation in the MWP.
6)Provides that if a borrower chooses to participate in the
program prior to the filing of a notice of default (NOD) then
the mortgagee, trustee, beneficiary, or authorized agent is
not required to exercise other due diligence contact
requirements as currently mandated under the law.
7)Provides that if a borrower elects to participate in the MWP
s/he must complete an election form either via Internet Web
site, email, telephone, or via mail service.
8)Provides that the program administrator shall implement rules
and standards for the MWP, as specified and collect all
require fees.
9)Requires within 10 days of requesting to participate in the
MWP, the borrower shall submit specified documents to the
program administrator.
10)Requires that within 10 days of receiving notice that the
borrower has elected to participate in the MWP, the mortgagee,
trustee, beneficiary, or authorized agent shall likewise
submit specified documents to the program administrator.
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11)Provides that the foreclosure process is suspended during the
time the borrower is participating in the program.
12)Provides that the mortgagee, trustee, beneficiary or
authorized agent shall deposit an administrative fee of $500
and a deposit of mediator's fees of $600, as well as, all
required documentation within 10 days of notification from the
administrator of the borrower's request to participate in the
program.
13)Prohibits continuances of the MWP session(s) unless certain
conditions are met.
14)Specifies that the borrower and mortgagee, trustee,
beneficiary, or authorized agent may, but are not required to,
agree on the terms of a loan modification.
15)Provides that nothing shall be construed to prevent a
creditor from offering or accepting alternatives in writing to
foreclosure, such as a short sale or deed-in-lieu of
foreclosure, but only if the borrower requests these
alternatives, rejects a loan modification offered pursuant to
this section, or does not qualify for a loan modification
pursuant to this section.
16)Specifies that if a borrower fails to meaningfully
participate in the MWP, the program shall be suspended, unless
the borrower cures noncompliance within 10 days.
17)Specifies that the mortgagee, trustee, beneficiary or
authorized agent fails to meaningfully participate,
foreclosure actions shall be suspended until such time that
the mortgagee, trustee, beneficiary or authorized agent cures
noncompliance.
18)Requires the administrator to report quarterly to the
Legislature regarding the performance of the MWP.
19)Each mortgagee, trustee, beneficiary, or authorized agent
participating in the MWP shall post public data reports on a
quarterly basis on its Internet Web site
20)Requires that a conciliation officer shall use all reasonable
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efforts to ensure that each MWP session is completed within 60
calendar days of the appointment.
21)Requires the conciliation officer to issue a report to the
Administrator upon completion of the conciliation that shall
state whether the parties reached a mutually acceptable
resolution.
22)Provides that the obligations of borrowers, mortgagees,
trustees, beneficiaries and authorized agents under this act
shall become operative only upon issuance of a notice to the
Governor by the Administrator declaring that the rules,
standards, forms, training, lists, collection and payment
provisions required by 2946.2 have been completed such that
the Administrator has the capacity to make the program
available to any borrower wishing to participate in every
county of the state.
23)Provides that operation of the bill is contingent upon
receipt of federal funding.
24)Provides that the bill shall sunset on January 1, 2014.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, minor state costs, as implementation is contingent on
federal funds and ongoing costs of mediation is covered by fees
paid by participants. Key fiscal impacts include:
1)Annual costs for newly appointed administrator, associated
staff, and overhead to administer the MWP, ranging up to $1
million (Federal Funds).
2)Annual costs to the Department of Corporations and the
Department of Financial Institutions of about $80,000 to
respond to borrower inquiries and complaints, to develop a
protocol for examining licensees for compliance with the new
requirements, and add the new protocol into routine
examinations (special funds).
3)Potential state-reimbursable mandated costs to local
governments, probably minor, related to recording of
additional information with notices of default.
COMMENTS : The joint authors carry this bill, sponsored by Los
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Angeles Mayor Antonio Villaraigosa, to provide an important
opportunity for residential mortgage borrowers to engage in
discussions with their lender or loan servicer in an effort to
come to work out a mutually acceptable agreement to modify the
terms of the loan prior to foreclosure.
The authors explain the reason for the bill as follows:
Thus far, the solutions offered to address foreclosure have
been a gamut of voluntary programs that still place
borrowers at the distinct disadvantage of having to trust
that their lenders can process their request for help in a
timely manner to help them avoid foreclosure.
Voluntary approaches that rely on the beneficent decisions
of lenders are no longer acceptable. All of the programs
that exist today fail to create an atmosphere of
accountability, trust and transparency in the loan
modification process.
The Home Affordable Modification Program (HAMP), is the
cornerstone of the Federal response to the foreclosure
crisis. Thus far, the numbers are less than successful.
The HAMP program was designed to assist 3-4 million
homeowners. Almost eighteen months after implementation,
1.3 million temporary modifications offers have been
extended with only 170,000 made permanent. While 1.3
million temporary offers seem significant, it is unclear
how many of those were accepted or whether they were on
terms the borrower could afford. Anecdotal examples show
that many temporary offers do little more than create
balloon payments of outstanding principle and interest, or
in some cases actually
increase the monthly mortgage amount due to the mandatory
creation of escrow accounts for taxes and insurance.
A solution that holds promise is foreclosure mediation that
requires lenders and borrowers to meet face to face with a
neutral third party to work out a loan modification, or to
determine if a modification is not appropriate and work out
an exit from the home that is best for all parties.
Foreclosure mediation is working in other jurisdictions
outside of California. The City of Philadelphia has had
success in saving homes using this model and last year,
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Nevada started a statewide mediation program.
Under AB 1639, a borrower who is delinquent on their
mortgage or receives a notice of default can elect to
participate in a foreclosure mediation program with their
lender so they can arrive at a sustainable loan
modification. If the borrower is not able to receive a
modification it would allow the borrower and lender to work
out a reasonable transition plan. This program will ensure
that homeowners who have a chance to stay in their homes
get that opportunity. Mediation is not a one-sided concept
- lenders and servicers have every incentive to participate
because a mediation session will demonstrate if a borrower
qualifies for a modification program. Furthermore,
mediation is also a fair system to address foreclosure
because in CA, the mediator can not compel a specific
result.
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334
FN: 0004713