BILL ANALYSIS
SB 94
Page 1
Date of Hearing: July 6, 2009
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Pedro Nava, Chair
SB 94 (Calderon) - As Amended: June 11, 2009
SENATE VOTE : 21-14
SUBJECT : Mortgage Loans.
SUMMARY : Prohibits persons from charging advance fees to
borrowers in connection with a loan modification, and requires
those who wish to charge a fee for loan modification services to
provide a notice to borrowers regarding other options available
to the borrower. Specifically, this bill :
1)Prohibits licensed real estate brokers, until January 1, 2013,
who negotiates, attempts to negotiate, arranges, attempts to
arrange, or otherwise offers to perform a mortgage loan
modification or other form of mortgage loan forbearance for a
fee or other compensation paid by the borrower in regards to
mortgages and deeds of trust secured by residential real
property containing four or fewer dwelling units to do any of
the following:
a) Claim, demand, charge, collect, or receive any
compensation until after the licensee has fully performed
each and every service the licensee contracted to perform
or represented that he/she/it would perform;
b) Take any wage assignment, any lien of any type on real
or personal property, or any other security to secure the
payment of compensation; or,
c) Take any power of attorney from the borrower for any
purpose.
2)Requires a licensed real estate broker who negotiates,
attempts to negotiate, arranges, attempts to arrange or
otherwise offers to perform a mortgage loan modification or
other form of mortgage loan forbearance for a fee or other
form of compensation paid by the borrower to provide the
following notice to the borrower, as a separate statement, in
not less than 14-point bold type, prior to entering into any
fee agreement with the borrower:
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"It is not necessary to pay a third party to arrange for a
loan modification or other form of forbearance from your
mortgage lender or servicer. You may call your lender
directly to ask for a change in your loan terms. Nonprofit
housing counseling agencies also offer these and other forms
of borrower assistance free of charge. A list of nonprofit
housing counseling agencies approved by the United States
Department of Housing and Urban Development (HUD) is
available from your local HUD office or by visiting
www.hud.gov ."
a) Requires a translated copy of the above notice to be
provided to a borrower, if the loan modification or other
mortgage loan forbearance services are offered to or
negotiated with the borrower in one of the foreign
languages set forth in Section 1632 of the Civil Code
(Spanish, Korean, Vietnamese, Tagalog, and Chinese).
3)Provides that a violation of the above fee provision and
notice requirements is a public offense, punishable by a fine
not exceeding $10,000 for a natural person or $50,000 for a
corporation, or by imprisonment in a county jail for up to one
year, or by both a fine and imprisonment. Those penalties are
cumulative to any other remedies or penalties provided by law.
4)Requires persons including attorneys (with no sunset date) who
negotiates, attempts to negotiate, arranges, attempts to
arrange, or otherwise offers to perform a mortgage loan
modification or other form of mortgage loan forbearance for a
fee or other compensation paid by the borrower to provide the
following notice to the borrower in regards to mortgages and
deeds of trust secured by residential real property containing
four or fewer dwelling units, as a separate statement, in not
less than 14-point bold type, prior to entering into any fee
agreement with the borrower:
"It is not necessary to pay a third party to arrange for a
loan modification or other form of forbearance from your
mortgage lender or servicer. You may call your lender
directly to ask for a change in your loan terms. Nonprofit
housing counseling agencies also offer these and other forms
of borrower assistance free of charge. A list of nonprofit
housing counseling agencies approved by the United States
Department of Housing and Urban Development (HUD) is
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available from your local HUD office or by visiting
www.hud.gov ."
a) Requires a translated copy of the above notice to be
provided to a borrower, if the loan modification or other
mortgage loan forbearance services are offered to or
negotiated with the borrower in one of the foreign
languages set forth in Section 1632 of the Civil Code
(Spanish, Korean, Vietnamese, Tagalog, and Chinese).
b) Provides that a violation of the above notice
requirement is a public offense, punishable by a fine not
exceeding $10,000 for a natural person or $50,000 for a
corporation, or by imprisonment in a county jail for up to
one year, or by both a fine and imprisonment. Those
penalties are cumulative to any other remedies or penalties
provided by law.
c) Specifies that the requirement in #4 does not apply to a
person, or an agent acting on that person's behalf,
offering loan modification or other loan forbearance
services for a loan owned or serviced by that person.
5)Prohibits persons including attorneys, until January 1, 2013,
who negotiates, attempts to negotiate, arranges, attempts to
arrange, or otherwise offers to perform a mortgage loan
modification or other form of mortgage loan forbearance for a
fee or other compensation paid by the borrower to do any of
the following:
a) Claim, demand, charge, collect, or receive any
compensation until after the licensee has fully performed
each and every service the licensee contracted to perform
or represented that he/she would perform;
b) Take any wage assignment, any lien of any type on real
or personal property, or any other security to secure the
payment of compensation; or,
c) Take any power of attorney from the borrower for any
purpose.
6)Provides that a violation of the above fee requirement is a
public offense, punishable by a fine not exceeding $10,000 for
a natural person or $50,000 for a corporation, or by
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imprisonment in a county jail for up to one year, or by both a
fine and imprisonment. Those penalties are cumulative to any
other remedies or penalties provided by law.
7)Explains that nothing in #5 precludes a person, or an agent
acting on that person's behalf, who offers loan modification
or other loan forbearance services for a loan owned or
serviced by that person from collecting principal, interest,
or other charges under the terms of the loan, as specified.
8)Clarifies that the real estate law does not apply to a
HUD-certified counseling organization or its employees, when
the organization or its employees provides counseling services
at no cost to a borrower, and in connection with the
modification of the terms of a loan secured directly or
collaterally by a lien on single-family residential real
property.
9)Authorizes the Department of Real Estate (DRE) to enforce
violations of the sections of the Civil Code relating to
mortgages [Section 2920 et seq. of the Civil Code].
10)Prohibits any California Finance Lender Law licensee from
making a materially false or misleading statement or
representation to a borrower about the terms or conditions of
that borrower's loan, when making or brokering the loan.
11)Makes technical changes to the foreclosure consultant law, to
more clearly describe the entities that are exempt from that
law.
EXISTING LAW
1)Allows the commissioner to look at all materials used in
obtaining advance fee agreements, including but not limited to
the contract forms, letters or cards used to solicit
prospective sellers, and radio and television advertising be
submitted to him or her at least 10 calendar days before they
are used. [Business and Professions Code, Section 10085]
2)Allows the commissioner to determine the form of the advance
fee agreements, and all material used in soliciting
prospective owners and sellers. [Business and Professions
Code, Section 10085]
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3)Prohibits any person from claiming, demanding, charging,
receiving, collecting, or contracting for an advance fee for
soliciting lenders on behalf of borrowers or performing
services for borrowers in connection with loans to be secured
directly or collaterally by a lien on real property, before
the borrower becomes obligated to complete the loan or, for
performing any other activities for which a license is
required, unless the person is a licensed real estate broker.
[Business and Professions Code Section 10085.5]
4)Allows licensed real estate brokers to charge borrowers an advance
fee for helping negotiate a loan modification on a borrower's
behalf, as long as the broker's fee agreement has been reviewed by
DRE, and DRE has no objections to it, and as long as the fee is
collected before a notice of default has been recorded.
5)Provides for the foreclosure consultant law, which defines a
foreclosure consultant as one who makes any solicitation,
representation, or offer to any owner of a property on which a
notice of default has been recorded, to perform any of the
following services for compensation: [Civil Code Section 2945 et
seq.]
a) Stop or postpone a foreclosure sale, or save the owner's
residence from foreclosure;
b) Obtain any forbearance from any beneficiary or mortgagee;
c) Help the owner exercise his or her right of reinstatement,
or extend the period within which the owner may reinstate his
or her mortgage obligation;
d) Obtain any waiver of an acceleration clause in any mortgage,
as specified;
e) Help the owner obtain a loan or advance of funds;
f) Avoid or ameliorate the impairment of the owner's credit,
resulting from the recordation of a notice of default or the
conduct of a foreclosure sale; or,
g) Help the owner obtain remaining proceeds from a foreclosure
sale of the owner's residence.
6)Exempts the following individuals and businesses from the
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foreclosure consultant law: a person licensed to practice law; a
licensed prorater; a licensed real estate broker, as specified; a
licensed accountant; a person or his or her agent acting under
express authority of or written approval from HUD or other federal
department or agency; a person who holds or is owed an obligation
secured by a lien on any residence in foreclosure, when the person
performs services in connection with that obligation or lien; a
licensed finance lender, as specified; a licensed depository
institution; a licensed escrow agent or other licensed person
authorized to conduct a title or escrow business; and a licensed
residential mortgage lender or servicer.
FISCAL EFFECT : Unknown
COMMENTS :
A number of loan modification companies are charging homeowners
$1000 to $4000 for little to no work. In most cases, companies
ask for the money upfront and lure homeowners in with false
promises and guarantees. This bill attempts to solve the issue
of these "loan modification specialists" charging absurd fees
for little to no work completed. SB 94 also carries a
beneficial notice requirement that any person including
attorneys who negotiate or attempt to negotiate loan
modifications must provide the borrower with a notice showing
them that the services provided can be free through a number of
other resources.
Currently, the DRE is investigating over 500 complaints of
fraudulent loan modification companies. California continues to
rate very high with the number of foreclosures filed. This
problem makes the state more susceptible to foreclosure scams.
Homeowners are desperate to save their home and willing to go in
further debt by paying a fee before the person has even showed
any substantive results. It goes without saying, when a
borrower gives a "loan modification specialist," money the
borrower wants the end result to be a loan modification.
California needs action now to curb further abuse and prevent
these scam artists from finding ways to make money off a very
sad situation.
Argument in support: The Center for Responsible Lending states,
"SB 94 cracks down on unscrupulous individuals and businesses
who are preying on troubled borrowers. The bill prohibits any
person or business who offers to provide a homeowner with loan
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modification services from charging an up-front fee, and
requires those who seek to charge borrowers a fee for any such
loan modification services to clearly inform borrowers that
similar services are available from non-profit housing
counselors, free of charge."
Argument in opposition: The California Association of Realtors
believe "if a broker concludes it is appropriate to include an
advance fee in his or her business model; and if the broker
submits the fee contract to the regulator; and if it is approved
by the DRE; and if the broker abides by the all the disclosures
and protections of SB 94, then the contract ought to be
allowed."
Federal Action: Earlier this year, President Obama's
Administration launched the Making Home Affordable Program in an
effort to stabilize the housing market and ensure responsible
homeowners can afford to stay in their homes by assisting
eligible homeowners with refinancing or modifying their
mortgages. It is estimated the plan will help up to 7 to 9
million families restructure or refinance their mortgages to
lower their monthly payments and make their mortgages affordable
now and in the future - an opportunity for relief that
unfortunately also brings greater opportunity for criminal
actors to prey upon consumers seeking assistance.
In addition, on April 6, 2009, President Obama's Administration
along with the U.S. Department of the Treasury, the U.S.
Department of Justice (DOJ), HUD, the Federal Trade Commission
(FTC), and the Attorney General of Illinois announced an effort
to coordinate information and resources across agencies to
maximize targeting and efficiency in fraud investigations, alert
financial institutions to emerging schemes, step up enforcement
actions and educate consumers to help those in financial trouble
avoid becoming the victims of a loan modification or foreclosure
rescue scam. A key part of the announcement emphasized
borrowers should never pay any up-front fees for loan
modifications.
Related Legislation: SB 764 (Nava, Bass, Feuer) would prohibit
persons from charging fees to borrowers in connection with the
modification of the terms of the borrower's loan until the terms
of the loan have been modified and would require those who wish
to charge a fee for loan modification services to provide a
specified notice to borrowers regarding other options available
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to the borrower.
REGISTERED SUPPORT / OPPOSITION :
Support
AFSCME
ByDesign
California ACORN
California Association of Mortgage Brokers
California Labor Federation
Center for Responsible Lending
City and County of San Francisco District Attorney
City of Oakland
Coalition for Quality Credit Counseling
Consumer Credit Counseling Service of Orange County
Consumer Credit Counseling Service, Twin Cities
Consumers Union
Los Angeles County District Attorney's Office
Novadebt
The State Bar of California
Opposition
California Association of Realtors
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081