States Struggle to Come to Terms with Mortgage Mess

As trouble in the nation’s housing markets has roiled onward, state legislators have been moving in varied attempts to address a burgeoning crisis affecting key constituents — and with varied success, as well. In hard-hit California, whose key housing markets are reeling from the mortgage meltdown, state legislators are set to consider no less than ten different bills tied to the housing mess. The bills are in varying states of modification and debate, with consumer groups charging that bankers are watering down the measures, and bankers in turn charging that existing proposals need to be modified to keep lending activity thriving in the state. State Assemblymember Ted Lieu, a Democrat, has been particularly active in the housing reform push — a review of current bills under consideration in Sacramento show that the majority are sponsored by the chairman of the state Assembly’s Banking and Finance Committee. One of the key bills jointly proposed by Lieu — AB 1830, the Subprime Lending Reform Act — has been hotly contested by members of the California Mortgage Bankers Association. Housing Wire first broke coverage of the proposed bill in January, which had sought broad reform for lending standards in the state, outlawing negative amortization mortgages and stated income lending, while heavily restricting brokers’ ability to earn yield spread premium. The measure has since been scaled back to apply only to subprime loans, after protests from banking industry representatives. Other measures have faced similar heat as well, as the Los Angeles Times recently covered in depth. Depending on your perspective, the changes to various housing proposals are either a good thing or a bad thing — but regardless of personal perspective, it’s clear that pushing industry regulation through at the state level in California has been a challenge thus far. Pushing costs sky-high for investors Outside of California, other measures have seen comparatively more success — albeit often at the lender’s and servicer’s direct expense. The result is that foreclosures, already costly for servicers, are becoming even more costly. In Philadelphia, HW broke the story of an attempted long-term moratorium on foreclosure activity by the sheriff and City Council members; that effort included an attempt by consumer groups to wrest responsibility for the loss mitigation decision-making process form investors and servicers. That attempt led t oa new city-wide program that requires houses put up for sheriff’s sale to be referred to city officials who would work with lenders with the aim of restructuring the loan so the borrower can stay in the property. Local tax dollars fund the operation. Getting there meant holding up more than 1,200 foreclosure sales — something that investors have been less than pleased with, according to those that spoke with Housing Wire. “Cities and state governments are playing with the foreclosure process because they know they can kick it around,” said one hedge fund manager, who asked not to be named. “It’s a risk that we price in on any acquisitions we’re doing at this point.” Other programs adding to risk for mortgage bankers include a proposal now being considered in New Jersey that would create a fund for mortgage counseling and emergency loans to troubled homeowners, by forcing banks to pay the state a $2,000 fee each time it conducts a foreclosure sale. The proposed measures were first reported Tuesday by the Courier Post. And in Massachusetts, a new law effective on May 1 provides an additional 90 “cooling off period” on foreclosure activity within the state. The result, according to a story appearing in the Boston Herald on Tuesday morning, is that the number of foreclosures initiated fell to just 390 in the Bay State last month — an 88 percent drop from one month earlier. It’s the first time lenders initiated less than 1,000 foreclosures since January 2006, meaning that legislation has now forced foreclosures below even the levels observed during the housing boom. “You’re dragging out what’s already a very long process – and the end result is probably going to be foreclosure anyway,” Kevin Cuff of the Massachusetts Mortgage Bankers Association is quoted as saying.