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» VISIT US ONLINE @ DSNEWS.COM COVER STORY POINT-COUNTERPOINT According to Paul A. Leonard The provisions of the California Homeowner Bill of Rights (CHBR) took effect January 1, 2013, so we're still in the early stages of figuring out how it will play out and what it means for California. So far, I think it has generally been successful, although I think it's still a little too early to tell 100 percent. There's been a fair amount of attention given recently to the first reported successful challenge from a homeowner, which literally stopped the homeowner from losing their home. The claim was filed by a resident just outside of Sacramento under the dual tracking provisions of the CHBR. The judge stopped the foreclosure from proceeding and there is a pending appeal for attorney's fees. To me, that's an indication that the law is working as it is intended because it appears, at least in the facts of that case, Bank of America made no challenge to the allegation that it had, in fact, been dualtracking. That's an example of the bill working in the way it's intended to work, which is to give borrowers a tool by which to hold the servicers accountable for violations of the legal requirements and the foreclosure process as it's laid out in the CHBR. I think it was pretty clear that in the early months of this year, there was some delay and a notable slowing down in filings of default notices as POINT— COUNTERPOINT servicing and default management reforms mean significant changes to servicing practices, and PricewaterhouseCoopers says this is especially true for mortgage servicers that have not already adopted other regulatory requirements such as those found in federal regulator's mortgage servicing consent orders or the National Mortgage Settlement. California's Homeowner Bill of Rights has been in effect for six months now—a good time to ask: Are the new laws a positive for the state's housing market, or will they ultimately have the debilitating effect of prolonging the market's correction and constraining future credit? servicers, I suspect, were taking additional care to make sure they were adhering to the requirements of the law before moving forward and filing new notices of default and in some cases new notices of sale as well. Still, it's very hard to disentangle what's happening in the market because of CHBR legislation and what's happening because of the larger economy. My sense from looking at the numbers—to the extent that we can even though we can't really control for the improving economy, for the full implementation of the National Mortgage Settlement (NMS) provisions, and all other factors that might influence housing conditions—my sense is that the law is doing what it's supposed to do, which is ensure borrowers who submit a complete loan modification application are provided certain protections to prevent the foreclosure process from continuing forward. Certainly there's a lot of noise and concern in the lender and servicer communities about new liability risks and the slowing of the process in general. But I haven't seen any evidence that's actually the case. There was a slowdown at the beginning of the year, but my sense was that it was a transitional change and not a permanent one. Instead, I think servicers are, as was intended, being more diligent about adhering to the law in a more consistent fashion and making sure that borrowers are given full and fair consideration for loan modifications. Certainly, in many markets, the improving economy and particularly, housing prices are helping borrowers who are underwater, and for those not underwater, they now have options other than default and going through the modification or foreclosure process, including selling their homes. The scales have, for too long, been tilted in favor of lenders and servicers, to the extent that even as servicers have attempted to make some sort of good-faith effort, there have been numerous instances of reported problems with few mechanism for borrowers to hold their servicers accountable. The provisions of the CHBR level the playing field considerably and put a fair and balanced approach in place that gives borrowers an opportunity to really challenge and stop a foreclosure from moving forward when the appropriate process has not been followed. BEST PRACTICES Analysts at Barclays contend that the Homeowner Bill of Rights is the main driving force behind recent slowdowns in foreclosure sales and short sales in the Golden State. Barclays believes "servicers have become significantly more cautious when carrying out foreclosure[s]" in the state. In addition to stalling the foreclosure process, provisions in the legislation have led to an increase in litigation risk for servicers, according to Barclays' analysts. The California Association of Realtors (C.A.R.) opposed what it describes as "well-intentioned legislation" because the local trade group believes it will encourage the filing of lawsuits that are intended to delay valid evictions, which will only impede local markets' recoveries and ultimately serve to discourage lending, according to C.A.R. California is the first state to make the reforms outlined in the National Mortgage Settlement between five major servicers and state and federal officials applicable to all mortgage servicers. While proponents of the state's new foreclosure laws contend its consumer protections are essential to guarantee basic fairness and transparency for homeowners facing foreclosure, others say it only muddies servicing procedures and fails to address issues at the core of the state's foreclosure epidemic. "As long as California continues to struggle economically and have high unemployment rates, foreclosures will unfortunately continue to be a reality for some homeowners because they cannot afford their mortgage, even if modified," the California Bankers Association stressed in a written statement, adding, "Advancing legislation that creates additional procedural hurdles for loan servicers, without addressing the borrower's underlying financial condition, misses the mark of resolving core economic issues, and will ultimately prove unsuccessful at solving this complex problem." No matter which side of the argument you're on, it's hard to disagree that California's INDUSTRY INSIGHTS W hen the package of statutes that make up the California Homeowner Bill of Rights took effect in January 2013, notices of default issued to delinquent borrowers plummeted 60.5 percent, according to the San Diego-based tracking firm ForeclosureRadar. 57

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