sb 1275 opposition letter to author leno (2)

8/9/2019 SB 1275 Opposition Letter to Author Leno (2)

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STATE OF CALIFORNIA -- BUSINESS, TRANSPORTATION AND HOUSING AGENCY ARNOLD SCHWARZENEGGER, Governor

DEPARTMENT OF CORPORATIONSBusiness Services and Consumer and Investor Protection

Preston DuFauchard

California Corporations Commissioner

Sacramento, California IN REPLY REFER TO:FILE NO:SB 1275

June 28, 2010

The Honorable Mark LenoCalifornia State SenateState Capitol, Room 4061Sacramento, CA 95814

Re: Senate Bill 1275 OPPOSE

Dear Senator Leno:

This letter is to inform you of the Department of Corporations and the Department ofReal Estates position of OPPOSE on SB 1275 (collectively, Departments).

While the Departments recognize that the goal of the legislation is to ensure thatborrowers are not falling through the cracks in the loan modification process, the sameareas of the loan modification process that SB 1275 seeks to remedy have already

recently been addressed. In particular, Supplemental Directive 10-02 under the HomeAffordable Modification Program (HAMP) addresses many of the same areas of the loanmodification process as SB 1275. It is premature to add another layer of requirementscovering the same issues, when there is no evidence regarding the lack of efficacy ofthis HAMP directive that has only become operative on June 1, 2010.

Further, since the inception of the HAMP program in 2009, there have been tensupplemental directives issued in 2009 and five thus far in 2010, further refining theprogram and setting forth procedural requirements for servicers. Among the reasons forthe 15 directives are the changing nature of the housing crisis, and the need to respondto program and economic developments. Consequently, the Departments are

concerned about legislating in the same area that is continuously evolving under federaloversight, and in a manner which will open the door for legal challenges to the bill.

With respect to borrower outreach efforts, effective June 1, 2010, HAMP set forth aprohibition against a referral to foreclosure until either a borrower has been evaluated

SACRAMENTO 95814-4052 SAN FRANCISCO 94105-2980 LOS ANGELES 90013-2344 SAN DIEGO 92101-36971515 K STREET, SUITE 200 71 STEVENSON STREET, 2100 320 WEST 4TH STREET, SUITE 750 1350 FRONT STREET, ROOM 20

(916) 445-7205 (415) 972-8559 (213) 576-7500 (619) 525-4233

1-866-ASK-CORP www.corp.ca.gov 1-866-275-2677


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The Honorable Mark LenoSB 1275 OpposeJune 28, 2010Page 2

and determined to be ineligible for HAMP, or reasonable solicitation efforts have failed.Therefore, for the overwhelming majority of loans, HAMP requires a borrower beconsidered for a modification prior to a referral to foreclosure. SB 1275 adds an

unnecessary layer of redundancy to the process. For servicers not contractuallyobligated to comply with HAMP, SB 1275 creates a disincentive not to offer loanmodifications, by crafting prescriptive timeframes and exposing servicers to liability forengaging in loan modification efforts.

With respect to servicer declarations of compliance, the public declaration requiredby SB 1275 raises privacy concerns for borrowers and adds needless disruption to adeclaration process that was enacted less than two years ago in SB 1137 (Perata, Ch.69, Stats. 2008). The need or benefit of crafting a new declaration process is not clear,given that in addition to SB 1137, the HAMP directive now requires servicers to providewritten certifications to trustees regarding compliance with HAMP. Consequently, the

process of documenting compliance with borrower outreach efforts appears to beadequately addressed in existing law and under the recent HAMP directive. Again, SB1275 adds an unnecessary layer of redundancy and complexity to the process, andinvites litigation.

In addition to other concerns, the remedies under the bill are troublesome given thelack of any nexus between the procedural failures leading to liability under the bill and aborrowers ability to qualify for a loan modification or otherwise fulfill the mortgageagreement. SB 1275 adds incentives for litigation to a nonjudicial foreclosure processand establishes disincentives for servicers to participate in loan modification programs.In an attempt to keep borrowers from falling through the cracks, SB 1275 has

established complex procedural requirements and exposure to liability for all loanmodifications to address problems that have occurred at the margins, and that havealready been addressed through the HAMP directive.

This legislation may have negative effects in the future, as it appears likely toincrease the future costs for housing finance. The Departments caution that the newrequirements, uncertainty, and liability resulting from the bill may be passed along toborrowers and the housing markets through higher costs, less access to credit, and lesscapital available for housing. In California, sustainable loan modifications have provento be elusive because of high unemployment and the prevalence of houses that areworth significantly less than the loans secured by them.

Should you or you staff have any questions or need further assistance, pleasecontact me at the number below, or Tom Pool, Assistant Commissioner, Department ofReal Estate, at 227-0772.

Sincerely,

_________________________Colleen MonahanDeputy Commissioner

Department of Corporations


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The Honorable Mark LenoSB 1275 OpposeJune 28, 2010Page 3

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sb 1275 opposition letter to author leno (2)

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