Outside of Florida, no state has been quite as devastated by the fraudclosure crisis as California has, so it comes as no surprise that they would be at the center of what looks like a growing trend.
Just this week Governor Jerry Brown signed into a law a Homeowners Bill of Rights. This legislation, among other things, will restrict dual-tracking, the shady practice of modifying a loan while still pursuing a foreclosure.
The law will also impose a singular point of contact for homeowners to deal with at their lender.
And of course it requires banks to prove that they have the legal right to foreclose and preserves the right for homeowners to take legal action when they don’t.
On one level it seems so preposterous that such rules would be needed, but we let the fox guard the henhouse for far too long, hence the reason we had a foreclosure crisis in the first place!
Those things that should be obvious are no longer just violations of common law (and common sense) but are finally being codified as violations of statutory law.
The reality is what you are seeing in California is an absolute necessity and they are not the only ones. Nevada actually passed similar rules last year. New York’s State Assembly just passed a bill that would criminalize robosigning, although sadly the Senate did not vote on the legislation this year.
In fact this is a growing trend, one that is long overdue.
There are bills that could make changes to the foreclosure process in dozens of states, and if a majority of them pass, it will be hard for Congress to ignore. It would become unwieldy for banks to do business, and nationalization of these laws will be a necessity.
But the fact is the states had no other choice but to take the ball back into their own courts. D.C. has been sorely behind on getting the housing crisis back on track. The states have been unable to rely on the legal system and judicial system to put an end to fraudclosure.
The rules of the road that were created by the courts in order to police themselves have been generally ineffective and have been completely disgraced.
While the servicing settlement that was signed by the attorneys general does provide for some new industry standards, it failed to address the obvious criminality of the acts perpetrated by the banks.
I told you when the settlement was passed it was a necessary first step, but by no means would it bring an end to the crisis by itself. To make the mortgage process respectable once more, many more steps will need to be taken, so I applaud California Attorney General Kamala Harris and others like her for protecting their constituents and upholding the rule of law.
Had there been a true legal component to the settlement, then perhaps a Bill of Rights might not have been necessary, but the banks would never had let that happen, now would they?
Of course there has already been some pushback from the banking and mortgage industries, and they are using the same fear mongering tactics they have clung to in the past.
They claim this will keep the housing market from recovering, that it will keep them from clearing out their foreclosure backlog. They will tell you that different rules in different states will make it impossible for them to do business.
In reality, all it will do is force them to reengage their customers and encourage competition amongst the banks. It will accelerate the short sale market, and further reinforce the notion that foreclosure is the worst option for everyone.
I am much more likely to believe our elected officials than the bankers who think that committing illegal acts is a necessary component to their success.
From The Trenches,