Legislature to tackle loan crisis

The leader of the state Senate on Thursday joined a growing legion of state and federal officials calling to protect Californians from losing their homes and to ban lending practices that helped create the growing sub-prime mortgage crisis.

“It’s crucial that we give homeowners the tools they need to avoid foreclosure when possible,” said Senate President Pro Tem Don Perata (D-Oakland) at a news conference in front of the home of a constituent who is struggling to avoid foreclosure.

Perata and other Senate Democrats plan to introduce bills requiring mortgage lenders and servicers to provide greater disclosure to borrowers about when monthly payments for adjustable-rate loans will increase. Lenders also would be required to hold face-to-face meetings with borrowers. The sit-downs would explore the possibility of restructuring adjustable-rate loans and provide lists of federal-government-approved counselors to help them navigate the complex legal process.

Additionally under Perata’s proposal, renters living in homes that could be foreclosed upon would be given earlier notice that they might have to move. And loan servicing companies, after they take over the vacant homes, would be forced to maintain them to make sure neighborhoods would not become run-down, Perata said.

The proposals, once drafted as bills, would be moved through the Legislature on an urgency basis, meaning they would become law as soon as they receive the votes of two-thirds of the members of the Legislature and the governor’s signature, Perata said.

The Senate Democrats’ measures are likely to complement an initiative put forward by Assembly Speaker Fabian Nunez (D-Los Angeles), said Assembly Banking and Finance Committee Chairman Ted Lieu (D-Torrance). Many of the Assembly proposals are similar to those made this week by Federal Reserve Chairman Ben S. Bernanke that would tighten lending practices so that potential buyers can afford their homes. The Assembly Democratic plan, which has not yet been put in bill form, would provide increased funding for independent counselors to help people negotiate loan modifications with their lenders.

Gov. Arnold Schwarzenegger, who has persuaded several big lenders to freeze interest rates temporarily on some qualifying mortgages, is open to work with legislators to find ways to quickly ease the effect of the weak housing market on California’s economy, said Deputy Press Secretary Sabrina Lockhart.

Republicans in the Assembly, whose votes would be needed to pass any urgency bill, “look forward to working with Democrats to find responsible solutions to the problem,” spokeswoman Jennifer McDaniel said. Republicans, however, want to be careful that any restrictions on lending practices don’t “close the door to homeownership for some borrowers.”

Republican members of the Senate are also wary of rushing to pass laws. “Too many times people tend to overreact,” Senate Republican Leader Dick Ackerman of Irvine said.

marc.lifsher@latimes.com