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Mortgage Legislation Passes Assembly – What’s In It?

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Yesterday, the Assembly passed SB 1137, which would alter the mortgage industry in California and aid those in danger of losing their homes.  It got through the Assembly by one vote, with 10 Republicans voting with the Democrats.  The Senate will need to pass it again to conform to some amendments and then this will go quickly to the Governor’s desk.  As Frank Russo writes:

The bill that passed, SB 1137 is authored by Democratic Senators Don Perata, Ellen Corbett, and Michael Machado, and coauthored by Speaker of the Assembly Karen Bass and principal coauthor Assemblymember Ted Lieu, who presented it on the Assembly floor. It goes beyond federal laws and received broad support from consumer groups. The legislation requires lenders and servicers to: 1) contact borrowers (or engage in a prescribed process to do so) to schedule telephone or in-person meetings on restructuring options before beginning the foreclosure process, 2) requires a 60-day notice to be given to tenants of buildings facing foreclosure before they can be removed from a rental housing unit; and 3) allows fines of up to $1,000 a day for owners of foreclosed properties that fail to adequately maintain them.

I like aspects of this legislation, particularly the steps toward removing blight in homes that aren’t properly maintained, which is a big problem in heavily foreclosed areas.  But this bill is a watered-down supplement to the raft of bills presented by Ted Lieu earlier this year, which would have really reformed the mortgage market.  There would have been enhanced regulation, limits to penalties for prepayment, a requirement to translate loan terms to non-English speaking customers (yes, that’s not current law), eliminate yield spread premiums (which rewarded lenders for getting their customers into higher interest-rate loans) and gotten rid of weasel language in mortgage documents like involuntary legal waivers.  Almost all of those bills were gutted to the delight of the lending industry.  What’s in its place is vaguely helpful to borrowers, but not at all the industrywide reform that is needed to ensure that a runaway market like we saw a few years ago will never be repeated.  Lieu modeled his reforms after those in North Carolina, where they work very well.  This was a case of the lobbyists getting a hold of legislation before it could actually do any good.

Here’s Ted Lieu’s statement (on the flip):

“Senator Don Perata’s SB 1137 sends a strong message that the California State Legislature will go further than federal law to address the mortgage foreclosure crisis. Recently and unfortunately, the Senate Banking, Finance and Insurance committee killed a comprehensive package of Assembly mortgage reform bills based on industry’s argument that California should do nothing other than conform to federal law. SB 1137 is a clear and stunning rejection of the ultra-conservative industry argument that California has no role other than to follow the federal government. This bill shows we will lead, not just follow, and that relying on the same federal regulators that failed us during the mortgage crisis is not an option.

“California was the hardest hit and therefore needs to be at the forefront of creating such a comprehensive plan. Such states as New York and North Carolina have already passed comprehensive mortgage reform. It is time we do more.

“Again, I would like to commend Pro Tem Perata on his recognition that sensible mortgage reform requires California to go further than federal law. SB 1137 is a solid first step, but we certainly need to do more to address adequately the mortgage crisis. The Assembly already passed a solid package of comprehensive reforms to the Senate. The ball is now in the California Senate’s court.”

Sen. Mike Machado was instrumental in getting industry’s back and gutting the most far-reaching aspects of the Lieu bills, and Democrats in the Assembly gave some payback by killing most of the legislation he offered this year.  Rather than an elementary school slap-fight, it’d be nice if there was some conviction from the leadership to go beyond the most cosmetic solutions and fight for their constituents.

Economy

Welcome To Youngstown

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California is starting to look more and more like the factory states in the 1980s after everybody pulled out.

California’s deteriorating economy is demonstrated anew by a sharp jump in the state’s unemployment rate to 6.8 percent in May.

The Department of Employment says 60,000 fewer Californians held jobs last month than in April, and 18,000 fewer than in May 2007. Unemployment, meanwhile, hit 1.3 million, up by 300,000 from May 2007.

That’s an over 30% increase in the unemployed in just one year.  

The paralysis of the state’s government is slightly more manageable when job growth is expanding, sectors are booming and money is flowing into the coffers.  When you have a dramatic downturn like this, government simply must have the flexibility to act.  It actually needs that flexibility all the time, but in a downturn people suffer visibly from the structural stasis.

If the Democrats can use the Youngstown-ization of the state economy as a lever to argue for legitimate, long-lasting structural changes, they’d gather a lot of support.  The LA Chamber of Commerce is talking about restoring the car tax, fercryinoutloud.  The problem, of course, is that California’s government is being held for ransom, in a bipartisan way, and it simply eliminates any opportunity for moving forward.

The backers of a package of bills to overhaul subprime lending regulations pointed to a deepening crisis that has put one of every 242 California homes into foreclosure in February, the second highest rate in the nation […]

The package of subprime bills had been approved by the Assembly. But it hit rough waters Wednesday in the Senate banking committee, chaired by Sen. Mike Machado, D-Linden.

Machado has dealt with mortgage issues for years. His district is one of the national epicenters for foreclosures. But Machado is seen by some consumer advocates as overly sympathetic to the industry.

“The arguments he makes are certainly quite similar to those made by the industry folks we are negotiating with, and in many cases don’t seem to put the protection of consumers at the forefront,” Leonard said.

Machado isn’t alone in being bought and paid for, of course.  The lobbyists talk about “regulatory nightmares” that will stop anyone from getting credit and stunt job growth.  They spend lots of money to ensure their argument will be heard.  And they water everything down.  

This is why we have a bitter, angry electorate.  Democrats have the opportunity to channel that anger.  But the universe of those who put their constituents first is narrow indeed.  Broken government leads to broken lives.

Welcome to Youngstown.

(alternatively, you could call it Bankruptsville, USA.  But I like Youngstown.)

Central Valley

Get Yer Scorecard

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The Capitol Weekly did their first annual legislative scorecard of members of the State Assembly and Senate.  They go into detail about their methodology and recognize that devising these types of scores is more art than science.  In addition the voting sample size is fairly small.  But I still believe there’s some value to them.

The full list (PDF) is here.  Some interesting tidbits on the flip:

You can pretty obviously see that we have an ideologically rigid legislature.  8 Republican Assemblymen have a “perfect” 0 score on legislation (fully conservative), and 13 Democrats have a 100 (fully liberal).  In the Senate, there are 2 Republicans with a 0 score and 5 Democrats with a score of 100.

The Republicans, however, are FAR more unified.  There are no Assembly Republicans with a score above 20, and no Senate Republicans above 30.  Put it this way, the 2nd-most “moderate” Republican in the legislature is right-wing loon Tom McClintock, I guess because he is occasionally libertarian.

By contrast, a handful of Democrats dip into the other side of the ocean.  Here are the Democrats with scores under 50.

Assembly:
Cathleen Galgiani 20
Nicole Parra 20
Juan Arambula 50

Senate:
Lou Correa 40
Mike Machado 45

All 3 Assembly Democrats live in the Central Valley (Galgiani’s from Stockton, Parra’s from Bakersfield and Arambula’s from Fresno).  Mike Machado is also from this area (Stockton, Tracy).  Correa is the only exception to this rule.

Galgiani’s election site features the line “I’ll never raise your taxes.”  Machado endorsed Steve Filson in last year’s Congressional primary against Jerry McNerney.

I’m not making value judgments, this is all just somewhat interesting stuff and I’m trying to make sense of it, particularly in the context of yesterday’s discussion about the Central Valley.  The spotlight is not usually shined on this area; is that how we end up with Democrats like this?