Powerful banking interests have stalled the lead measure of a three-bill package aimed at beefing up borrowers' rights in California, but the other two bills have struggled to passage in the Senate and have been sent to the Assembly.
"My gut feeling is that we're going to have a difficult time" getting any of the bills passed by both houses of the Legislature, says
Krist Lane, a consultant who helped state Sen. Leroy Greene (D-Sacramento) draft the three bills.
One of the measures approved by the Senate would require lenders to include detailed information in certain types of advertisements.
The other would require that borrowers be notified in writing if the rate they are quoted at the time they file their application could change before the loan is funded.
But it is the third measure--SB 1118--that consumer advocates say would provide the biggest benefits to mortgage shoppers. It is also the bill that has drawn the most fire from lobbyists representing lenders.
The measure, which has bogged down in the Senate, would force lenders to give consumers an "original copy" of a property appraisal after the consumer has paid for it. If the consumer grows unhappy with the lender before the loan is made, he could conceivably switch to an institution offering a better rate and avoid paying another $175 to $300 for a second appraisal.
"The bill would tend to make shopping for a better deal cheaper and easier," says Harry Snyder, director of the West Coast regional office of Consumers Union, a consumer advocacy group that supports the legislation. "And besides, there's a principal here--you should get what you paid for."
The bill would affect only future borrowers because it has no retroactive clause, consultant Lane said.
Most lenders are currently reluctant to give appraisals to borrowers, and none will accept a photocopy of an appraisal when processing a loan because they fear the document may have been doctored.
Lobbyists for the banking industry oppose the appraisal bill, in part because they fear they would have to produce two appraisals instead of one. "That means higher costs for the lender or consumer," says Stan Wieg, a lobbyist for the California Bankers Assn.
In addition, Wieg says, releasing appraisals to consumers could subject lenders to additional lawsuits, and consumers who disagree with the conclusions in the report might harass their appraiser.
Lobbyists for the lending industry have voiced their concerns about the legislation to Greene, and a compromise is apparently in the works. Under an amendment that lobbyists were drawing up last week, borrowers could obtain a photocopy of an appraisal if they paid for the report and requested a copy of it.
"We believe this amendment will be acceptable to the senator, based on our discussions with him," says David Milton, a lobbyist for the California League of Savings Institutions.
If Greene likes the amendment, Milton adds, it could be introduced later this week.
But the proposed amendment may be opposed by Consumers Union and other supporters of SB 1118. "It seems absurd that you'd have to pay $250 in appraisal fees to get a Xerox copy of what your home is worth," says Judith Bell, Consumers Union's director of special projects. "And a photocopy certainly wouldn't be accepted by other lenders."
However, Bell adds, her group doesn't want to take an official stance on the proposed amendment until the document is completed.
Without some sort of compromise, the bill would likely fail if it was put up for a vote before the full Senate. However, time is running out; if the Senate doesn't approve the measure by June 26, the bill can't be considered again until next January.
Face Uncertain Future
Although the other two measures have already been passed by the Senate, they face an uncertain future in the Assembly.
The first bill, SB 1120, would require lenders to include detailed information in certain types of loan advertisements. If a specific rate is advertised, the lender would have to disclose in the ad whether the rate is guaranteed for a certain length of time.
The second, SB 1124, would force lenders who don't "lock-in" their interest rates to inform borrowers in writing that the rate they are quoted could change before the loan is actually made.
It would also mandate that lenders make a "good faith and . . . realistic" estimate of how long it will take to process the application and close the loan.
Technical Changes Made
Lenders initially opposed both pieces of legislation, but then pulled back after some technical changes were made, lobbyist Milton said. However, he added, "we still have some problems" with the two bills, and their opposition may be reinstated.
Consumer groups had hoped additional legislation might be introduced this year that would make it tougher for lenders to renege on commitments to make low-interest loans.
Some state lawmakers have reportedly been swamped with complaints from borrowers who applied for 9% loans in early spring, but now must accept less attractive terms because mortgage rates have surged and lenders claim they aren't obligated to produce a loan at the rate they originally quoted.
Hopes for such "lock-in" legislation have been dampened by the cool reception given to the three bills Greene has already introduced. Federal legislation aimed at solving the problem was introduced in Congress last week, but its chances of passage could be hurt if banking interests oppose it.