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Letter From FHFA

Letter From FHFA

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Published by JonHealey

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Categories:Types, Letters
Published by: JonHealey on May 18, 2012
Copyright:Attribution Non-commercial

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05/18/2012

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MAY-18-201210:07From:SENATECOMMONBFI9163277093To:9163275989
r§~~i~0\\
FederalHousing
Finance
Agency
""(.('\1
C
<
C
mr,,\:.,
onstitunonenter
""-,,JfJ
4007
1h
Street,S.W.
~l£/\'\.v
-.,,--Washington,D.C.2{)024Telephone:(202)643800
Facsimile:(202)649-1071
May11,2012TheHonorableNoreenEvans
Co-Chair,ConferenceCommitteeonAssemblyBill278andSenateBill900
State
Capitol,
Room4032
Sacramento,California
95814
The
HonorableMike
Eng
Co-Chair,Conference
Committee
onAssembly13i11278andSenateBill900
StateCapitol,Room4016Sacramento,California95814TheHonorableSam
Blakeslee
Member,ConferenceCommitteeonAssemblyBill278andSenateBill900
State
Capitol,
Room4066
Sacrnmcnro,
California95814TheHonorableDonaldP.WagnerMember,ConferenceCommitteeonAssemblyBill278
and
Senate
Bill
900StateCapitol,
Room
4153
Sacramento,California95814
TheHonorable
Ronald
S.Calderon
Member,ConferenceCommitteeonAssemblyBill278andSenateBill900
StateCapitol,Room
5066
Sacramento,California95814
RE:ConferenceCommitteeonFinancialServicesLegislation
SenatorEvans,AssemblymanEng,SenatorBlakeslee,
Assen"lblyrnan
Wil.gnerandSenatorCalderon;
Onbehalf
of
the
FederalHousingFinanceAgencyWHFA).
I
wish
toprovideFF-IFA'sviewsregardinglegislationpendingbefore
yOU!
ConferenceCommittee.FHFA
1->
theregulatorfortheFederalHomeLoanBanks,includingtheFederalHomeLoanBankofSanFrancisco)FannieMaeandFreddieMacandallhaveoperations
in
California,FannieMaeandFreddieMacarecurrentlyoperating
in
conservatorshipswiththesupportoftaxpayerstomaintainapositivenetworth.Since
thelegislationunderconsideration
affects
mortgagemarketsand,
in
particular,addressesthedefault
andforeclosureprocessesaswellasprovisions
relating
tohomeownersandtenants,IhopethatFHFNsviewswouldbenefit
10ut
deliberations.
 
MAY-18-201210:07From:SENATECOMMONBFI9163277093To:9153275989
Page2
Whilethereareseveralbillsbeforeyou,I
will
addresstwo.Theabsenceofcommentsonothermeasuresdoesnotconstituteanyendorsementoftheotherlegislation,but
lather
afocusontheitemsofgreatestconsequence.
AssemblyBill2425/SenateBi111471
AD2425/SB1471containsprovisionsthatwouldrequiteservicerstoestablishasinglepointofcontactandimposesignificant
civil
penalties
for
"robosigned"documents.FHFA
is
concernedthatthe"robosigning'provisionsofSB1471aredisconnectedfromtheissuesfirst
giving
risetothispracticein
judicial
states,gowellbeyondanythingintheNationalMortgageSettlementandposesignificantrisksforthehousingmarket.The"robosigning"provisionsofSB1471areoverlybroadanddisproportionatetotheperceivedproblem.Asreportedinthepress,"robosigning"resultedfromthehigh-volumegenerationofaffidavits
by
personswholackedtherequisite"personal"knowledgetosigntheaffidavits;thiscontrastsdramaticallywiththelegislativeprovisions
in.
thebillthatpurporttoaddressrobosigning,While[heNationalMortgageSettlementrefersto"robosigning"asthe"repeatedfalseattestationofinformationinaffidavits,"itnowherecontainsanactualdefinitionof"robosigning."
By
contrast,Section2924.17(a)ofSB1471would
define
a"robosigned"documentbroadlytoinclude"anydocument"thatcontainsfactualassertionsthatate"notaccurate"orate"incomplete."TheproposedbillwouldallowtheAttorneyGeneraloradistrictattorneytopunishanyentitythatrecordsorfiles""robosigned"document
by
imposinga$10,000
"civil
penalty"persuchdocument.Noexceptionismadeunderthiscivilpenaltyfor
any
technicalorminorerror
in
aforeclosuredocument,even
in
caseswheretheborrower'sdefaultandthelender'srighttoforeclose
is
uncontested.Thevaguereferencetoan"incomplete"documentraisesseriousquestionsaboutcompliancewithamostuncertainlegalrequirement.Further,thiscreatesastandardforanyerroneouscomponentofaforeclosureprocess,aprocessthatunderCalifornialaw
tnl'ly
includehundredsofpagesofmaterials)
ma.ny
notcentraltotherightsofahomeowner,andtiesthisbroadandvaguelanguagetoastrictliabilitystandard.Suchastrict
liability
approachispunitive,
will
haveachillingeffectontheprocessingoflawfulforeclosuresand
will.
result
in
lendersandinvestorsre-evaluatingtherisksattendanttomarketoperations
in
thestateandmayleadtoreducedcreditavailabilityor
highe.t
interestrates.TheprivateremediessectionthatSB1471separatelycreatesforborrowerscompoundsthechallengesforlenders.Basedonnomorethananavermentofaborrower's"reasonablebelief"thataforeclosuredocumenthasbeen"robosigned,"Section2924.18makesthecourtsavailablefor
aborrower
to
seekan
injunction,attorney'sfees,costsand$10,000
or
more
in
damages.Whileaborrower
may
notrecoverforaviolationthatis"technicalor;
deminimis
in
nature,"theproposedbillleavesthatdefensetothevagariesoflitigationandtoarequireddefense
by
alenderthatcouldentailtensofthousandsofdollars
in
litigationcosts.Thepotentialrecoveryforadefaultedborrowerandplaintiff'scounsel
will
merelyencouragelitigationaspartofastrategytoforestallalawfulforeclosureorextractasettlement.Intheend,California'snon-judicialforeclosureprocess,thathasservedtheStatewellandallowedafasterrecoveryofitshousingmarket,
will
suffer.
 
MAY-18-201210:07From:SENATECOMMONBFI9163277093To:9163275989P.3/5
Page3
Assembly
Bill
2610/SenateBill1473AB
2610/SB
1473isintendedtoprovidegreaterprotectionstotenants
by
incorporatingporbonsofthefederal
"Protecting
Tenants
at
Foreclosure
Act"
("ProTAFA")intoCalifornialaw.
FHFA
is
concernedthatthisbillcouldencouragefraudandabuseofthe
foreclosure
process.Federal
law
containsadefinitionofa"bonafide"tenancy.UnderProTAFA,
a
leaseortenancy
is
"bonafide"
if
thetenant
is
notthemo.ttgagorOrtheparent,spouseor
child
ofthemortgagor,theleaseortenancyistheresultofanarms-lengthtransaction;and,theleaseortenancyrequiresrentthatisnotsubstantiallylowerthan
fair
marketrentor
is
reduced
or
subsidizedduetoa
federal,
state,
orlocalsubsidy.Thislackor'a"bonafide"leaserequirementunderAB261O/SB1473failstoaccountforthepossibilitythatpropertyownerscould«gameth~system"byleasingpropertyatbelowmarketratesorpreventingthenewownerftomtakingpossessionfor90-day~orthedurationoftheleasewiththe"tenter."Thistypeofeventhasbeenseen
in
practiceunderthecurrentfederal
law
andtheavailabilityofthe"bona
fide"
leaserequirementhashelpedavoidfundamentallyfraudulentpractices.ForeclosureDelaysUnfortunately,asnotedhere,someoftheproposalsunderconsiderationintheConferenceCommitteepresentunnecessaryandcounterproductiveapproachestoaddressinghousingmarketissuesandtheneedsofhomeownersandtenants.FHFA
1S
well
"wareofthechallengesfacingstatesandlocalitiesfromthehousingc):jsis-homeownerslosingtheirhomes,erosionofthetaxbaseandresultingcurtailmentoflocalservicesand,
in
manyareas,blightedneighborhoodsTheenactmentoflocallawsandordinancesthatresultinunintendedconsequencesand
fail,
in
manyinstances,
to
achievetheirgoalsdoes
notassisthomeowners,neighborhoods
Ot
the
localities.
State
laws
that
stretchouttheperiodforlegititnatefotedosures-aftereveryeffortismade
toavoid
foreclosureandtokeephomeownersintheirhomes-resultinuoaddedbenefitforthehomeownerandptoduceharmtothe.housingfinancesystemandtoneighborhoods.
Simply
attachingtheterminologyofconsumerprotectiontolegislationdoesnotmeanit
will
benefitaconsumerandadversecDn~equencesneedtobeexamined.Increasinglegalrisksforlendersand
mvestots-
whereexistingremediesexistandwherenewlanguagecreatesincentivesforlitigation-ultimatelycreatesharmforallhomeowners.Addingimpedimentstoactionsundertakenafterdefaultandlayeringrestrictionsonlegitimateforeclosures,therebypermittinghomeownerstostay
in
theirhomesforhundredsofdayswhilenotpayingtheirmortgages,propertytaxesorhomeowner'sassociationdues,costsneighborhoods,costslendersand,ultimately,costslocaltaxpayersandfutureborrowers.Clearly,lawsgoverningthedefaultandforeclosureprocessmustbefollowed.Wherethereareviolations,theyshouldbesanctioned.However,addingnewlaws,proceduresandrequirementswheresanctionshavebeenappliedandremedialstepstaken,mayonlyaddtodelaysandproducenodifferentoutcomefor.homeownerswhohavereceivedappropriateeffortsatloanmodificationsorforeclosureavoidanceapproaches.Thepreferredoptionofservicersand[cridersistokeepthehomeowner
in
thehome.Intheend,theremustbesornelikelihoodthatthehomeownerwhohasdefaultedcanrenewmeetingtheirobligations,
if
necessarywithaloanmodification,orcanavoidforeclosurethroughashortsaleorotherdevice;
jf
not,thenforeclosure
is
appropriate.Despitediscussionregardingmediation,procedurallawdiscrepancies,"robosigning"andfalse
affidavits-

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