(MoneyWatch) If you're trying to get your loan modified in most states, the lender is simultaneously working to get you further down the path to foreclosure. That's why the next stop from a failed attempt at a loan modification often means foreclosure is a step closer.
But that's not how it will work in California: A pair of bills that encompass some of the key provisions of a Homeowner Bill of Rights sent to Governor Jerry Brown for signature will eliminate the dual loan modification/foreclosure track.
If Gov. Brown signs the bills, which he has indicated he will, California will be the first state to outlaw the practice.
The laws also outlaw robo-signing, a practice where lenders hire individuals to process and sign foreclosure cases without doing any research to verify that the information is correct. Individuals and state agencies would also be able to sue financial institutions for economic compensation and additional damages if they can prove that lenders willfully, intentionally or recklessly violated the laws.
The legislation requires lenders to give borrowers a single point of contact (homeowners have complained about being shunted to different contacts, often receiving different and even contradictory information).
"This has been an incredibly long and tortuous process to get the kinds of basic protections that borrowers have long needed throughout this six-year crisis," Paul Leonard, California director of the Center for Responsible Lending in Oakland told the Los Angeles Times.
All this is supposed to help financially troubled homeowners stay in their homes long enough to work out their problems. But not all homeowners will be helped. The legislation applies to modifications only on primary mortgages (as opposed to second mortgages). The property must be owner-occupied and can't have more than four living units. Real estate investors are not covered under the legislation.
As expected, key members of the mortgage industry came out against the provisions. A new study, by Beacon Economics, suggests that the Homeowner Bill of Rights could mean mortgages will become more expensive and harder to get. For homeowners that go into default, the new rules could make foreclosures more difficult and expensive to go through.