Fourteen members of the California Democratic congressional delegation sent a letter to the Federal Housing Finance Agency Wednesday blasting its involvement and opposition to key pieces of the Homeowner Bill of Rights package being considered before the California State Assembly.
The friction is part of a growing dispute between California lawmakers and the regulator of Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Earlier in May, eight Republican and Democratic California congressional members introduced legislation calling for the FHFA to cease its plan to sell Fannie Mae-owned foreclosed homes in California to large investors.
The Homeowner Bill of Rights, introduced by California Attorney General Kamala Harris, intends to protect homeowners and tenants from egregious practices from financial institutions.
On May 11, the FHFA sent a letter to the California State Legislative Conference Committee expressing its concerns about certain provisions in the bill.
The FHFA is worried that the robo-signing provisions of the bill are overly broad and disproportionate to the problem of robo-signing, which resulted from the high-volume generation of foreclosure affidavits by individuals lacking the requisite information to sign the affidavits.
“Some of the proposals under consideration in the conference committee present unnecessary and counterproductive approaches to addressing housing market issues and the needs of homeowners and tenants,” wrote Alfred Pollard, general counsel to the FHFA Inspector General, in the letter to the committee.
The Homeowner Bill of Rights allows the attorney general or a district attorney to punish any entity that records or files a robo-signed document by imposing a $10,000 civil penalty per document. The FHFA is concerned that no exception is made under the civil penalty for any technical or minor error in a foreclosure document, even in cases where the borrower’s default and the lender’s right to foreclose is uncontested.
“The vague reference to an incomplete document raises serious questions about compliance with a most uncertain legal requirement,” Pollard said.
The California Reinvestment Coalition, a group of nearly 300 nonprofit organizations and public agencies in California, applauded the delegation’s letter criticizing the FHFA’s input on the matter. The CRC said the FHFA laid out its critiques without any substantial analysis of the scope of the problem in California.
The delegation’s letter urged independence in the legislative affairs of the state and called for an investigation into the FHFA’s lobbying activities, calling out what it says is the agency’s lack of expertise of California state legislation.
“(The FHFA’s letter) demonstrates a clear bias toward the lending industry’s preferred position,” the delegation’s letter states. “Such advocacy on behalf of a private industry, particularly in a matter related to existing state law, is a very questionable activity for an independent federal regulatory agency to undertake.”
The members of the Democratic delegation feel that the FHFA’s letter addresses issues that are not under the agency’s primary jurisdiction.
“The letter comments on pending legislation’s definition of robo-signing,” they said. “If robo-signing facilitates unfair, deceptive or abusive practices, the Consumer Financial Protection Bureau would have primary federal responsibility. If such practices constitute or facilitate federal criminal fraud, the Department of Justice would have investigative responsibility.”
In his letter, Pollard said that simply attaching the terminology of consumer protection to legislation does not mean it will benefit a consumer. "Increasing legal risks for lenders and investors — where existing remedies exist and where new language creates incentives for litigation — ultimately creates harm for all homeowners.”
Among other items, the California state legislature is considering a mandate that borrowers who apply for a loan modification in the first 120 days of delinquency get a yes or no determination before the foreclosure process commences. Also, borrowers who apply for a loan modification after the foreclosure process begins would have the opportunity to have their application considered before the foreclosure process continues.