Coalition Warns of ‘Significant Negative Consequences’ from California Bill

A bill moving through the California State Assembly is drawing strong opposition from the California Mortgage Bankers Association, which has put together a 12-organization coalition calling for amendments to Assembly Bill 2501. In response, the author of the bill told Mortgage Media that she is working on amendments that should address a number of those concerns.

The drafted legislation, “AB-2501: COVID-19 Homeowner, Tenant, and Consumer Relief Law of 2020,” was presented by Assemblymember Monique Limón, the chair of the California Assembly’s Banking and Finance Committee. It states that during the COVID-19 emergency, servicers must automatically put borrowers into 180-day forbearance if they are at least 60 days delinquent. Borrowers could then extend that an additional 180 days.

In a call with Mortgage Media, California MBA CEO Susan Milazzo warned that the bill would have “significant negative consequences for the California housing market.”

“The most significant element of the bill is that it is telling borrowers to stop making their mortgage payments in California for at least a year,” Milazzo said, later adding that if the bill goes through as it is, it would be probably contested in courts. “This is a breach of all the contracts in our state for their mortgages, the mortgages that are currently in place. You really could make a case that every borrower in the state California would be encouraged to stop making their mortgage payments for a minimum of a year.”

The bill has passed through the Assembly’s Banking and Finance Committee. It is expected to go to appropriations for fiscal review next week. If it passes through that step, it will go to the assembly floor for a vote.

Responding to the coalition’s letter of opposition, Assemblymember Limón shared this statement with Mortgage Media:

“Since AB 2501 was introduced, we have had very constructive and substantive conversations with a broad group of stakeholders, including the California Mortgage Bankers Association. I understand that the current version of the bill has raised concerns among mortgage servicers. I am working on amendments to the bill that should address a number of those concerns, including, but not limited to, providing a discrete time period during which a forbearance can be requested, smoothing over inconsistencies with the CARES Act related to federally backed loans, and providing more flexibility to servicers when offering post-forbearance loan modification and loss mitigation options. I anticipate that these amendments will be in place prior to the Assembly floor vote deadline on June 19th.”

The bill also has led to a call for action from the MBA’s Mortgage Action Alliance, which is asking all members of the industry that are based in California to send letters to their respective members of the state assembly, which is the lower house in the state of California legislature, to oppose this bill.

Pete Mills, SVP of Residential Policy and Member Engagement for the MBA, weighed in on AB-2501: “One of the biggest problems with this bill is that it creates a state level forbearance regime that will conflict with the federal regime. This will make it difficult for servicers to provide forbearance and loan modifications at the scale needed in this crisis.”

As the bill is currently written, Milazzo said it does not give an opportunity for the servicer to work with the borrower, for what would work best for them. “It certainly diminishes that borrower’s capacity to have access to credit going forward,” Milazzo said. “It’s also a disincentive for investors, including the GSEs, to continue lending and to provide credit in our state.”

Another concern is that the length of time for the mortgage forbearance is almost undetermined. “At a minimum, it is at least a year. At the end of that time, the servicer would have to assess the borrower’s ability to repay and then engage in a multitude of loan modifications and options for that borrower up to and including forgiveness of some of the original principle.”

“It was important for us to get out in front of that momentum that the bill has considering that we still haven’t seen any amendments that would be favorable to the real estate finance industry,” Milazzo said.

The opposition letter from the California MBA, which you can read here, is also signed by 11 other organizations:

  • California Bankers Association
  • American Financial Services Association
  • California Association of Realtors
  • California Chamber of Commerce
  • California Community Banking Network
  • California Credit Union League
  • California Land Title Association
  • California Mortgage Association
  • California Mortgage Bankers Association
  • Mortgage Bankers Association
  • Securities Industry and Financial
  • United Trustees Association

Dustin Hobbs, Communications Director for the California MBA, pointed out that one of the issues is that by not requiring that borrowers have an actual harm done to them through the pandemic, it takes away the focus from borrowers who actually are truly in need. “We need to be focused on – and the legislature should be focused on – borrowers and consumers in need, and not necessarily those who are not in need,” Hobbs said.

Milazzo said she hopes to see action from those in the industry, especially if they are in California, using the Mortgage Action Alliance, a free, nonpartisan effort through the national MBA. “The ask right now is for everybody who’s in California to engage with their members of the assembly and talk to them about how devastating this bill would be.”

Milazzo said she hoped to work with the author on amendments, to make the bill more in line with the CARES Act.

“We would certainly welcome the opportunity to work with the author and help her achieve what her goals are while we still are able to have an active housing market in California,” Milazzo said. “In a time when we are at very historic low interest rates, we don’t want to create a negative environment where homeowners or potential borrowers would not have an opportunity to take advantage of this market, and bills like 2501 would certainly restrict access to affordable credit in California.”