This article can be found at: http://www.thestreet.com/story/10849838/1/cali-mortgage-modifications-fa...
SACRAMENTO, Calif. (TheStreet) -- Just when troubled homeowners in California thought they'd be getting some additional help in preventing foreclosure, a surprising factor stands in their way: lawmakers.
The California State Assembly rejected a law on Monday that would have allowed homeowners to sue banks that foreclosed upon homes without fleshing out mortgage-modification options. A federal homeowner-rescue program requires participating mortgage servicers to do the same, but doesn't allow homeowners to sue if the requirement is ignored.
California is one of the states hardest hit by the mortgage crisis. Home prices there rose faster and higher than anywhere else in the country, particularly in Southern California. As the subprime market began to unravel, prices fell fast, leading to lay-offs and a flood of foreclosures.
In the Los Angeles area, prices have tumbled 44% from $593,600 in 2007 to $333,900 in 2009, according to the National Association of Realtors. In the Bay area, they've dropped 39%, from $804,800 to $493,300 over the same period of time. Meanwhile, state unemployment has been running a few points higher than the national average, running above 12% for the past year.
A foreclosure moratorium put in place by the federal government helped kick the can down the road for troubled borrowers in the Golden State. However, California has the fourth-highest foreclosure rate in the country, with one out of every 200 households having received notices in July. As the most populous state, with 14.3 million households, that ratio is significant.
The state assembly rejected a bill suggested by state Sen. Mark Leno, (D., San Francisco), in a 36-to-30 vote on Monday evening. Leno's proposal sought to address homeowner complaints that, while they're awaiting the outcome of mortgage-modification proceedings, the bank forecloses on the home. The wait time can be long, since banks have been flooded with loan-mod requests that they weren't prepared for initially. The industry has also been slow to act in many cases.
Though the proposal, SB1275, was popular among residents and consumer groups it came up against heavy lobbying from the banking industry. Banks are already tied up in a lot of crisis-era litigation and feared a fresh surge of costly lawsuits.
The federal government has been expanding and changing its "Making Home Affordable" program and other initiatives to smooth out wrinkles and speed up progress for desperate homeowners. On June 23, the Obama Administration announced a "Hardest Hit Fund," which would provide $1.5 billion in foreclosure-prevention funding for California and four other states facing sharp price declines and high unemployment.