California’s legislature passed changes to state foreclosure law that attempts to require dialog between an unpaid mortgage lender and a homeowner facing loss of his home.
SB1137 adds a requirement that the parties meet and discuss options to foreclosure before a notice of default can be recorded. Lenders must advise the debtor of the availability of HUD certified housing counseling.
What are the constraints on the advice HUD counselors can give? Can they suggest the borrower look for violations of applicable law in their loan transactions? Will they suggest Chapter 13 as an alternative to foreclosure? Do they have contact information for the loan modification staff at the lenders?
I applaud the California politicians who took some action on the problem. (Congress, Mr. Bush, are you listening?). My concerns go to whether any form of “counseling” will make a difference.
The typical problem is that the terms of the existing loan are simply beyond the capacity of the borrowers. The only solution is a modification that includes a fixed interest rate and often a forgiveness of interest or even principal. Otherwise, at the end of a longer foreclosure process, the bank is going to own another home.
