California Senate passes mortgage default warning bill

The first major bill designed to help prevent more home foreclosures in California won final passage from the state Senate on Wednesday and was sent to the governor, who was expected to sign the measure into law.

The legislation, which passed on a 32-8 vote, would require lenders to give homeowners more -- and earlier -- warnings that their home loans were heading toward default. The bill, SB1137, would take effect immediately once it had the signature of Gov. Arnold Schwarzenegger.

The bill also gives renters more time to find a new place to live when they are being evicted because their landlord is losing the property.

A third provision authorizes local governments to force lenders to maintain property that is sitting empty after a foreclosure.

"SB1137 will make a difference right away," said the author of the bill, Senate President Pro Tem Don Perata (D-Oakland).

"This legislation is an important piece of the puzzle of how to best protect California homeowners and communities from the fallout from the nation's mortgage crisis," Perata said.

Schwarzenegger, who this year persuaded state-licensed lenders to voluntarily help homeowners get out from under costly adjustable-rate mortgages, welcomed the Perata bill.

"This bipartisan legislation provides one more tool by giving borrowers the critical time needed before a foreclosure to work with their lenders," Schwarzenegger said.

Schwarzenegger's approval became all but certain after protracted negotiations between Perata and his backers -- mainly labor unions, community activists and advocates for fair lending practices -- found common ground with lobbyists for the banking and real estate industries.

The finished product, said Susan DeMars, executive director of the California Mortgage Bankers Assn., provides borrowers with relief "without arbitrarily limiting access to credit or discouraging investments that are needed to restore liquidity to California's housing market."

Passage of the bill came just after the state Department of Corporations released its latest monthly lenders survey, which contained mixed news on the real estate front.

On the positive side, the state reported that the number of loans being modified each month to require lower payments jumped 49% from January to May, when 8,686 so-called workouts of loan terms occurred.