10:54 PM PDT on Sunday, August 29, 2010

By JIM MILLER
Sacramento Bureau

SACRAMENTO – A bill that would set new rules for the foreclosure process is the focus of a fierce end-of-session fight between the lending industry and consumer groups.

Loan delinquency and foreclosure rates are down from the worst of the housing downturn but Riverside and San Bernardino counties remain among the hardest-hit parts of the state.

The bill, SB 1275, would require lenders and loan-servicing customers to better communicate with delinquent borrowers about modification options before beginning the foreclosure process. Borrowers could take loan companies to court for violations.

Supporters say the bill would preserve homeownership. Too often, they say, borrowers trying to modify their loans suffer from lenders losing paperwork and not returning phone calls. Meanwhile, different parts of the same companies are moving forward with the foreclosure process, backers contend.

But opponents say the legislation would lead to a surge of lawsuits. It also would unfairly help people who can afford to pay their mortgages but choose not to because they owe more than their homes are worth.

The bill passed the Senate in June with only Democrats voting yes. But the measure fell 14 votes short in the Assembly last Tuesday, with 11 Democrats joining Republicans in voting no and 13 Democrats not voting.

State Sen. Mark Leno, D-San Francisco, the bill’s author, blamed “a banking lobby out of control” for the Assembly vote. He asked for reconsideration and plans to try again today or Tuesday.

“They’re very powerful and they’re spreading misinformation to try to kill this consumer protection bill,” said Leno, who is carrying the bill with Senate President Pro Tem Darrell Steinberg, D-Sacramento. “We have not given up the fight.”

Dustin Hobbs, a spokesman for the California Mortgage Brokers Association, said the bill would set back the housing market’s sluggish recovery.

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