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Banks appear close to killing foreclosure-prevention bill

August 26, 2010 |  3:20 pm

The year's last big mortgage foreclosure-prevention bill is on life support and its author is racing to revive it before the California Legislature recesses Tuesday night.

The measure by Sen. Mark Leno (D-San Francisco) fell 14 votes short of the 41 needed to pass the Assembly after a coalition of banks, securities firms, home builders and business associations fielded squads of lobbyists to work against the bill, SB 1275. The bankers argue that the bill, if it becomes law, would make the foreclosure process overly complex and litigious.

"They put a lot of fear into people, and they abstained from voting," said Leno, who is hoping to change the minds of Democratic members over the next few days. "We're not through with this."

The bill would require mortgage servicers to give borrowers a decision on a request for a loan modification –- making it easier to make monthly payments –- before the foreclosure process can get started.

Leno and his co-author, Senate President Pro Tem Darrel Steinberg (D-Sacramento), along with their consumer advocate allies, contend that the bill is needed to protect property owners whose homes are sold out from under them before their loan modification requests can be a processed.

"This is a fairly modest reform," said Paul Leonard, director of the Center for Responsible Lending in Oakland.

Bankers dislike the proposal because it would give aggrieved homeowners the right to sue for monetary damages and to seek an injunction to delay or void a foreclosure.

"It would create an environment where you would see a lot of unnecessary lawsuits," said Dustin Hobbs, a spokesman for the California Mortgage Bankers Assn. "As frivolous as they may be, they all have to be defended. That's going to cost companies money, which in turn, is going to raise the cost of lending."

-- Marc Lifsher