BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1275 (Leno/Steinberg)
Hearing Date: 05/24/2010 Amended: 05/18/2010
Consultant: Maureen Ortiz Policy Vote: BFI: 7-2 Jud: 3-1
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BILL SUMMARY: SB 1275 requires mortgage loan servicers to
provide a borrower with a written notice that outlines the loan
modification and foreclosure processes, and also requires loan
servicers to file a certification of compliance as specified.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
DFI auditing/reviews $62
$121 $62 Special*
DOC ----------------
unknown ----------------------- Special**
DRE
-------------------minor------------------------
Special***
*Financial Institutions Fund **Corporations
Fund ***Real Estate Fund
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STAFF COMMENTS:
The Department of Financial Institutions (DFI) indicates the
need for one limited term examiner position for oversight and
enforcement duties. This bill expands existing homeowner
protections for mortgages that were recorded prior to December
31, 2007, to all mortgages originated before December 31, 2009
which will result in a direct increase in workload to the DFI.
The Department of Corporations (DOC) does anticipate an increase
in workload associated with additions to the examination process
and an increase in the number of complaints, however, it is
difficult to determine the fiscal impact as it relates to the
provisions of this bill compared with the increase in workload
related to the overall number of foreclosures in general. The
number of complaints filed with the DOC against licensees was
approximately 250 in 2008, but nearly tripled to 700-800
complaints in 2009 due to the downturn of the housing market
coupled with the increase in the foreclosure rate. While the
provisions of SB 1275 may add to that workload, it is not
anticipated to be significant at this time.
SB 1275 expands on previous legislation, SB 1137 (Perata,
Chapter 69, Statutes of 2008), which required mortgage lenders
to contact a borrower prior to filing a notice of default in
order to assess the borrower's financial situation and determine
options other than foreclosure. SB 1137 applied to
owner-occupied residential real property containing no more than
4 dwelling units, but was limited to mortgages obtained between
January 1, 2003 and December 31, 2007. It required servicers to
do the following: a) contact the borrower who is in default at
least 30 days prior to initiating foreclosure proceedings, b)
inform the borrower of his or her right to a subsequent meeting
with the lender, and c) provide the borrower with the telephone
number of a
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SB 1275 (Leno/Steinberg)
U. S. Department of Housing and Urban Development (HUD)
certified counselor. The provisions of SB 1137 will be repealed
January 1, 2013.
SB 1275 expands the number of loans that are protected under
those requirements to include all mortgages for owner-occupied
residential real property containing no more than four dwelling
units that were originated prior to December 31, 2009, and
requires loan servicers to provide the borrower with written
information regarding loan modifications and the borrower's
rights during the foreclosure process. The notice will provide
homeowners with information regarding their rights and
foreclosure avoidance options and would be provided in English
and five other languages by January 31, 2011. The top five
languages other than English that are most widely spoken by
Californians in their homes are Spanish, Chinese, Tagalog,
Vietnamese, and Korean.
The notice to borrowers will contain the following information:
a) "ARE YOU HAVING TROUBLE PAYING YOUR MORTGAGE?" - This
provision of the notice advises borrowers to contact their loan
servicers as soon as possible to discuss options for avoiding
foreclosure, and provides a toll free number to use to locate a
HUD certified housing counseling agency.
b) "POTENTIAL FORECLOSURE AVOIDANCE OPTIONS" - This provision
informs borrowers about the loan modification process including
the servicer's obligation for timely processing and adequate
explanations of denial, and provides information about the Home
Affordable Modification Program (HAMP).
c) "THE FORECLOSURE PROCESS" - This section of the notice
informs borrowers of the documents required by the loan servicer
during the foreclosure process and the timeline of this entire
process including the Notice of Default and the Notice of Sale.
It also advises the borrower to seek legal advice if necessary.
SB 1275 will require a loan servicer to explore options that
will assist the borrower in avoiding foreclosure, and will
prohibit the filing of a notice of default until the borrower
has been determined to be ineligible for a loan modification.
Loan servicers will be required to record a declaration of
compliance with the foreclosure trustee and mail the borrower a
notice stating that the borrower solicitation requirements have
been met. Failure to record that declaration of compliance may
allow a borrower to recover statutory damages of up to $10,000,
but not less than $1,500 from the mortgagee, trustee,
beneficiary, or authorized agent.
The declaration of compliance must demonstrate that reasonable
borrower solicitation efforts have been made, and shall include
dates, times, addresses, and telephone numbers used for the
contact. The declaration shall be a part of, or attached to,
every notice of default prior to being recorded, and will
contain a checklist of several items pertaining to the
declaration of compliance, borrower contact, and foreclosure
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SB 1275 (Leno/Steinberg)
avoidance review. Both the written notice to borrowers and the
declaration of compliance requirements will be repealed January
1, 2013.
If the loan servicer is participating in the federal Making Home
Affordable Modification Program (HAMP), then the written
communication must clearly describe the provisions of HAMP and
must include a list of the documents that the borrower should
submit in order to complete a loan modification analysis. If
the servicer is not participating in HAMP, then the notice will
include information on loan modification programs that are
available to the borrower. All notices shall include a
toll-free number and Internet web site where borrowers can
obtain information on options to avoid foreclosure.
Existing law provides that if a borrower breaches an obligation
of a mortgage loan, the lender is obligated to record a notice
of default in the office of the county recorder, and that after
a three month period following the notice of default, a notice
of sale may be given.