MORE IN BUSINESS »By NICK TIMIRAOS
States across the country are proposing a range of new rules that would make it more difficult for banks to foreclose on troubled homeowners.The moves have been prompted by concerns that lenders have been inefficient in restructuring mortgages, which results in unnecessary foreclosures, while using shoddy paperwork to repossess homes.Lenders are strongly resisting the measures, arguing that they will introduce new bottlenecks in the foreclosure process that could obstruct the incipient housing recovery."Should all 50 states decide to go down their own path, lenders are going to have multiple processes, each with their own little nuances, and every single penny of that cost will be borne by tomorrow's borrowers," said David Stevens, chief executive of the Mortgage Bankers Association.Such legislation is precisely what the nation's largest banks hoped to head off in February when they agreed to pay $25 billion in fines and borrower aid to settle allegations of foreclosure abuse with federal agencies and 49 state attorneys general. That settlement laid out standards for how banks must treat borrowers.![[image]](http://si.wsj.net/public/resources/images/NA-BR396_FORECL_NS_20120701174804.jpg)
The biggest showdown between lenders and lawmakers could occur as soon as Monday in California, when the state legislature is set to vote on an overhaul detailing new requirements banks must follow in the foreclosure process. While similar measures have failed in each of the last two years, the state's attorney general, Kamala Harris, has pushed strongly for the bills, improving the odds the bills will pass.Nationwide, 25 states have bills contemplating changes to various laws governing the foreclosure process, according to the National Conference of State Legislatures. In Oregon, the state's outgoing attorney general proposed new rules covering how banks handle loan modifications. New York's assembly is considering a measure that would criminalize foreclosure paperwork forgeries.California is getting the most attention because of the volume of homes lost to foreclosure every month, and because of its bank-friendly foreclosure process. The California bill would prevent foreclosures from moving forward while a borrower is trying to modify a mortgage, require large lenders to provide a single point of contact for borrowers seeking modifications, and allow homeowners to sue mortgage companies that fall short of the new rules."Most fundamentally, this legislation is about having a clear process, getting to a simple 'yes' or 'no' answer on a loan modification application before they start the foreclosure process," said Paul Leonard, California director of the Center for Responsible Lending, a borrower-advocacy nonprofit.Equally important, they say, is a new right for borrowers to sue banks, which they hope will make it harder for lenders to dodge new rules. With voluntary loan-modification programs, "there have not been any reliable consequences for anybody's failure to follow the rules," said Mr. LeonardThe mortgage industry says the bills will do little to provide more help to borrowers, while making it easier for borrowers to drag out negotiations. "It would allow consumers to extend, in theory payment free, the entire proceeding for months while waiting for the deliberation of the modification effort," said Mr. Stevens. California's measures have also drawn criticism from the federal agency that regulates mortgage giants Fannie Maeand Freddie Mac.The measures come at a time when price declines appear to be easing in more housing markets, which is partly a function of fewer homes being repossessed and sold by lenders. Nationally, foreclosures slowed down after the "robo-signing" scandal, when banks were caught routinely using bogus paperwork to process foreclosures. A loan in foreclosure in April had been delinquent for an average of 22 months, up from 14 months two years ago, according to Lender Processing Services Inc.Due to its size, California has among the largest volumes of foreclosures, and is second only to Florida. At the end of March, the share of loans in foreclosure in the California fell to 3.3%, the 24th highest rate in the country. Less than three years ago, the rate stood at nearly 5.8%, then the fourth highest, according to the Mortgage Bankers Association. Economists attribute that drop in the share of loans in foreclosure to the fact that California has an administrative, or nonjudicial, foreclosure process that doesn't require banks to foreclose through the courts. With less scrutiny, banks have been able to foreclose faster.In Nevada, which is also a non-judicial foreclosure state, the governor last fall signed a much stricter law that made it a felony for bank employees to make false representations when signing off on foreclosures. New foreclosure filings plunged, creating a glut of severely delinquent mortgages.Write to Nick Timiraos at nick.timiraos@wsj.com
MORE IN BUSINESS »
By NICK TIMIRAOS
States across the country are proposing a range of new rules that would make it more difficult for banks to foreclose on troubled homeowners.
The moves have been prompted by concerns that lenders have been inefficient in restructuring mortgages, which results in unnecessary foreclosures, while using shoddy paperwork to repossess homes.
Lenders are strongly resisting the measures, arguing that they will introduce new bottlenecks in the foreclosure process that could obstruct the incipient housing recovery.
"Should all 50 states decide to go down their own path, lenders are going to have multiple processes, each with their own little nuances, and every single penny of that cost will be borne by tomorrow's borrowers," said David Stevens, chief executive of the Mortgage Bankers Association.
Such legislation is precisely what the nation's largest banks hoped to head off in February when they agreed to pay $25 billion in fines and borrower aid to settle allegations of foreclosure abuse with federal agencies and 49 state attorneys general. That settlement laid out standards for how banks must treat borrowers.
The biggest showdown between lenders and lawmakers could occur as soon as Monday in California, when the state legislature is set to vote on an overhaul detailing new requirements banks must follow in the foreclosure process. While similar measures have failed in each of the last two years, the state's attorney general, Kamala Harris, has pushed strongly for the bills, improving the odds the bills will pass.
Nationwide, 25 states have bills contemplating changes to various laws governing the foreclosure process, according to the National Conference of State Legislatures. In Oregon, the state's outgoing attorney general proposed new rules covering how banks handle loan modifications. New York's assembly is considering a measure that would criminalize foreclosure paperwork forgeries.
California is getting the most attention because of the volume of homes lost to foreclosure every month, and because of its bank-friendly foreclosure process. The California bill would prevent foreclosures from moving forward while a borrower is trying to modify a mortgage, require large lenders to provide a single point of contact for borrowers seeking modifications, and allow homeowners to sue mortgage companies that fall short of the new rules.
"Most fundamentally, this legislation is about having a clear process, getting to a simple 'yes' or 'no' answer on a loan modification application before they start the foreclosure process," said Paul Leonard, California director of the Center for Responsible Lending, a borrower-advocacy nonprofit.
Equally important, they say, is a new right for borrowers to sue banks, which they hope will make it harder for lenders to dodge new rules. With voluntary loan-modification programs, "there have not been any reliable consequences for anybody's failure to follow the rules," said Mr. Leonard
The mortgage industry says the bills will do little to provide more help to borrowers, while making it easier for borrowers to drag out negotiations. "It would allow consumers to extend, in theory payment free, the entire proceeding for months while waiting for the deliberation of the modification effort," said Mr. Stevens. California's measures have also drawn criticism from the federal agency that regulates mortgage giants Fannie Maeand Freddie Mac.
The measures come at a time when price declines appear to be easing in more housing markets, which is partly a function of fewer homes being repossessed and sold by lenders. Nationally, foreclosures slowed down after the "robo-signing" scandal, when banks were caught routinely using bogus paperwork to process foreclosures. A loan in foreclosure in April had been delinquent for an average of 22 months, up from 14 months two years ago, according to Lender Processing Services Inc.
Due to its size, California has among the largest volumes of foreclosures, and is second only to Florida. At the end of March, the share of loans in foreclosure in the California fell to 3.3%, the 24th highest rate in the country. Less than three years ago, the rate stood at nearly 5.8%, then the fourth highest, according to the Mortgage Bankers Association. Economists attribute that drop in the share of loans in foreclosure to the fact that California has an administrative, or nonjudicial, foreclosure process that doesn't require banks to foreclose through the courts. With less scrutiny, banks have been able to foreclose faster.
In Nevada, which is also a non-judicial foreclosure state, the governor last fall signed a much stricter law that made it a felony for bank employees to make false representations when signing off on foreclosures. New foreclosure filings plunged, creating a glut of severely delinquent mortgages.
Write to Nick Timiraos at nick.timiraos@wsj.com
No comments:
Post a Comment