New California Law Helps Working Families Facing Home Foreclosure—And Hopefully More is on the Way

“The mortgage and foreclosure crisis has shattered this state’s economy,” Perata said. “This legislation is an important first step in helping the thousands of Californians and their communities afflicted by foreclosures.”

"Foreclosures not only devastate families they hurt neighborhoods and depress our economy and our budget," Governor Schwarzenegger said. "So, I am proud to announce today that we are giving Californians one more tool to help them stay in their homes - without government subsidies. And I am confident that with this legislation we will help even more Californians keep the American Dream of homeownership alive."

I also had the opportunity of speaking to Art Pulaski, head of the California Labor Federation before he had to skip out to speak at the national Health Care for America Now rally in San Francisco taking place across the Bay. He put this measure into the context of today’s economy and how it is affecting California’s workers:

“Millions of working families are at risk of losing their homes due to reckless and predatory mortgage lending. Now, with the economy in recession and the cost of gas and food at record highs, these homeowners are seeing their monthly payments double and triple overnight.

“Today, Governor Schwarzenegger signed SB 1137 in order to provide some desperately needed protection for families who can no longer afford their home loan. This bill, carried by Senator Don Perata, requires lenders to contact borrowers before they start the foreclosure process. This gives families a chance to try and modify bad loans before they lose their homes.

“Over the past few years, more and more California borrowers have been persuaded to take out loans with exorbitant pre-payment penalties. Predatory lenders have steered them into high-cost loans, even when they actually qualified for lower, fixed-rate loans. Far too many families have ended up in loans they don’t understand and can’t afford.

“No one wins with a home foreclosure; a family loses not only their most valuable asset, but the roof over their children's heads as well. The banks lose money from a short sale, and neighbors watch property values plummet. When a family is trapped in a loan they cannot afford, the best outcome is for everyone is a loan modification. That's exactly what this bill promotes.

“This bill provides immediate protection to those who need it most. We commend Senator Perata for championing this bill and the Governor for signing it. But this is just the first step in banning the abusive lending practices that created this crisis. California's working families, and our struggling state economy, simply cannot allow this sort of foreclosure freefall to happen again.”

Assemblymember Swanson told me that there are behind the scenes negotiations over additional legislation but declined to specify who was talking and where the talks were headed. He predicted additional action by the legislature.

Swanson, who sits on the Assembly Banking Committee, said: “My district has been hit particularly hard by the home mortgage crisis. Many homeowners and tenants are losing their dwellings because efforts to contact them are inadequate, and information that could help them remain in their homes rarely given. SB 1137 will address both of these issues by creating vital protections for homeowners and renters. Lenders will now have to make a good faith effort to contact a homeowner before starting foreclosure proceedings, and give notice further in advance to tenants of a property going into foreclosure. Best of all, lenders will be required to provide information for how those behind on their mortgages can get help,”

He added: “Mass foreclosures have created a new urban blight in our communities, which endangers the safety of those still living in those neighborhoods, and strains law enforcement resources in the area. Banks and other lenders will now have an obligation to maintain their properties, and prevent such blight from occurring. “Owning a home is a fundamental to the American dream. In these economic times of crisis, it is important for the Government to take action to protect homeowners and neighborhoods. This legislation is a strong step in that direction, and I was proud to support it.”

For more detailed information on this bill, the subprime mortgage crisis in California, and other action on this front, please check the Responsible Lending topic heading where we have dozens of articles in our archives.