| The California State Senate has passed Senate Bill 94 | | | | firms offering that such services, have helped tens of |
| (”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 foreclosures |
| Finance & Insurance Committee. The senate | | | | continuing to increase each month, it would seem clear |
| passed the bill on May 21, 2009, by a vote of 21 to 14. It | | | | that the state’s homeowners would not benefit |
| is now in the state assembly where it has been read | | | | from any legitimate avenue being overlooked or |
| once and “held at desk,” which means that | | | | unfairly maligned. |
| it’s awaiting referral to a committee. | | | | 3. Defrauding a homeowner has always been against |
| Senate Bill 94 is intended to protect California | | | | California law, so in that sense, SB 94 is redundant. |
| homeowners from scam loan modification companies. | | | | When you consider that “scammers” who did in |
| In my view, the problems with SB 94, as written | | | | fact defraud consumers in conjunction with the |
| include: | | | | promise of a loan modification, did so in violation of |
| 1. It was created to protect consumers from loan | | | | existing law, it would seem that a new law making it |
| modification “scammers” who charge distressed | | | | illegal to charge an advance fee when offering to |
| homeowners up front fees and deliver nothing in return, | | | | assist a homeowner with a loan modification would be |
| but it was written without the benefit of accurate data | | | | unlikely to prevent future scammers from attempting |
| on the contribution being made by the legitimate loan | | | | to do the same. |
| modification industry in California. Without knowing how | | | | 4. Legitimate firms offering to assist troubled |
| many homeowners the private sector loan | | | | homeowners could be regulated and monitored, |
| modification firms save each month, or the | | | | without requiring these firms to operate at a financial |
| sustainability of the modifications obtained by the | | | | disadvantage by disallowing advance fees. The |
| private sector, it would not be possible to design a | | | | process of obtaining a loan modification is not similar to |
| solution in the best interests of homeowners and the | | | | other real estate transactions in several key ways: |
| state’s economy. | | | | A. The process can take six weeks, or six months… |
| 2. The SB 94 bill, as written, is based on a fundamental | | | | and in some cases even longer. The lenders and |
| misconception. As stated in the in bill’s narrative: | | | | servicers are not consistent in how loan modifications |
| “It is not necessary to pay a third party to arrange | | | | are handled or on what basis they are granted. |
| for a loan modification or other form of forbearance | | | | B. There is no escrow, or objective standard for |
| from your mortgage lender or servicer. You may call | | | | “satisfaction,” in conjunction with a loan |
| your lender directly to ask for a change in your loan | | | | modification transaction, and therefore there is no |
| terms. Nonprofit housing counseling agencies also offer | | | | assurance that a company would receive payment |
| these and other forms of borrower assistance free of | | | | from the homeowner once the mortgage has been |
| charge.” | | | | modified. |
| While both of these statements are technically true, | | | | These are just a few of the issues with SB 94. The |
| this language ignores the fact that there are also | | | | law is attempting to protect homeowners, but is |
| reputable private sector firms that homeowners may | | | | actually protecting the lender guaranteeing that |
| choose to hire to help them negotiate with their banks | | | | homeowners will not be adequately represented when |
| when seeking a modification of their mortgages. | | | | dealing with the lender. The lenders will take advantage |
| Private sector firms, including those licensed by the | | | | of this and will offer homeowners loan modifications |
| state’s Department of Real Estate and/or law | | | | that do not help their situation. |