California State Senate Bill 94 - Protecting Homeowners Or Protecting Lenders?

The California State Senate has passed Senate Billoffering that such services, have helped tens of
94 ("SB 94?), legislation proposed by Sen. Ron S.thousands of California homeowners get their
Calderon (D-Montebello), Chairman of the Banking,mortgages modified. With the number of
Finance Insurance Committee. The senate passedforeclosures continuing to increase each month, it
the bill on May 21, 2009, by a vote of 21 to 14. Itwould seem clear that the state's homeowners
is now in the state assembly where it has beenwould not benefit from any legitimate avenue
read once and "held at desk," which means thatbeing overlooked or unfairly maligned.
it's awaiting referral to a committee.3. Defrauding a homeowner has always been
Senate Bill 94 is intended to protect Californiaagainst California law, so in that sense, SB 94 is
homeowners from scam loan modificationredundant. When you consider that "scammers"
companies.who did in fact defraud consumers in conjunction
In my view, the problems with SB 94, as writtenwith the promise of a loan modification, did so in
include:violation of existing law, it would seem that a new
1. It was created to protect consumers from loanlaw making it illegal to charge an advance fee
modification "scammers" who charge distressedwhen offering to assist a homeowner with a loan
homeowners up front fees and deliver nothing inmodification would be unlikely to prevent future
return, but it was written without the benefit ofscammers from attempting to do the same.
accurate data on the contribution being made by4. Legitimate firms offering to assist troubled
the legitimate loan modification industry inhomeowners could be regulated and monitored,
California. Without knowing how manywithout requiring these firms to operate at a
homeowners the private sector loan modificationfinancial disadvantage by disallowing advance fees.
firms save each month, or the sustainability ofThe process of obtaining a loan modification is not
the modifications obtained by the private sector,similar to other real estate transactions in several
it would not be possible to design a solution in thekey ways:
best interests of homeowners and the state'sA. The process can take six weeks, or six
economy.months... and in some cases even longer. The
2. The SB 94 bill, as written, is based on alenders and servicers are not consistent in how
fundamental misconception. As stated in the in bill'sloan modifications are handled or on what basis
narrative:they are granted.
"It is not necessary to pay a third party toB. There is no escrow, or objective standard for
arrange for a loan modification or other form of"satisfaction," in conjunction with a loan
forbearance from your mortgage lender ormodification transaction, and therefore there is no
servicer. You may call your lender directly to askassurance that a company would receive
for a change in your loan terms. Nonprofit housingpayment from the homeowner once the
counseling agencies also offer these and othermortgage has been modified.
forms of borrower assistance free of charge.These are just a few of the issues with SB 94.
While both of these statements are technicallyThe law is attempting to protect homeowners,
true, this language ignores the fact that there arebut is actually protecting the lender guaranteeing
also reputable private sector firms thatthat homeowners> will not be adequately
homeowners may choose to hire to help themrepresented when dealing with the lender. The
negotiate with their banks when seeking alenders will take advantage of this and will offer
modification of their mortgages. Private sectorhomeowners loan modifications that do not help
firms, including those licensed by the state'stheir situation.
Department of Real Estate and/or law firms