Bill to stem foreclosures fails in state Senate

Legislation to slow residential foreclosures in California failed by a single vote in the state Senate today after Republicans balked at requiring lenders to talk personally with borrowers before they start the default process.

After the vote, Senate President Pro Tem Don Perata (D-Oakland) criticized the GOP lawmakers and vowed to bring back a similar bill in the spring.

“There are some things, albeit minor, that we can do in California to help those who are ensnared in the so-called sub-prime mortgage crisis,” he said. “There are enough reasons for us to try to slow this process down.”

He warned that 300,000 California homeowners face dramatically higher monthly payments on their adjustable-interest-rate mortgages this year.

Republicans said the bill would do more harm than good by making lenders reluctant to do business in California.

“The requirement for an in-person meeting creates an incentive for delinquent borrowers to simply ignore all contacts with the lender,” said Sen. Dave Cox (R-Fair Oaks). What’s more, Cox charged, the bill would give a boost to people who may have bought homes they couldn’t afford and victimizes “people who paid for their homes that were within their means.”

Sen. Dave Cogdill (R-Modesto), a real estate appraiser, said the bill would have a “chilling effect” on the marketplace by discouraging companies from lending to Californians.

Perata’s bill (SB 926) failed on a 26-14 vote. Because the bill was being considered on an urgent basis, it required a two-thirds favorable vote – or 27 ayes – from the 40-member Senate. Fourteen out of 15 Republicans voted no.

The bill is one of about a dozen measures working their way through the Legislature to deal with the state’s worsening mortgage meltdown. Perata’s bill was the first of them to reach the Senate floor.

Wednesday’s legislation would have required mortgage servicers to try to confer with borrowers, either in person or on the telephone, in an attempt to modify loans so people could retain ownership of their homes.

It also sought to expand notifications to borrowers of impending increases in monthly payments, gave tenants of foreclosed properties extra time to find a new place to live and penalized owners of foreclosed properties for letting them deteriorate.

The heavily lobbied bill was supported by consumer groups, affordable-housing advocates and fair-lending organizations. Opponents included apartment owners, Realtors, mortgage bankers and brokers, the securities industry and the state chamber of commerce.

Opponents welcomed the measure’s narrow defeat, but supporters were disappointed. Opponents “are trying to stick their heads in the sand and think this problem is going away,” said Norma Garcia, a senior attorney with the West Coast office of Consumers Union, publisher of Consumer Reports magazine. “That’s not the case. It’s probably going to get worse.”

marc.lifsher@latimes.com