Foreclosure bill rejected by one vote

SACRAMENTO —  Legislation aimed at slowing residential foreclosures in California failed by a single vote in the state Senate on Wednesday, 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,” Perata 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.

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

He emphasized Wednesday that the foreclosure risk facing homeowners is primarily a national problem and noted that the Bush administration had asked lenders to refinance loans or change terms for certain borrowers to keep them in their homes.

The measures under consideration in Sacramento represent more limited steps the state can take to ease homeowner burdens, Perata said.

The legislation defeated Wednesday would have required lenders to try to confer with borrowers, either in person or by 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, give tenants in foreclosed properties more time to find new places to live and penalize owners of foreclosed properties who let them deteriorate.

The 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. Gov. Arnold Schwarzenegger took no position on the bill.

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,” Sen. Dave Cox (R-Fair Oaks) said. What’s more, Cox charged, the bill would give a boost to people who may have bought homes they couldn’t afford and victimize “people who paid for their homes that were within their means.”

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

The bill (SB 926) failed on a 26-14 vote. Because it 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.

Opponents welcomed the measure’s narrow defeat. The proposal, if passed, would have “resulted in endless litigation,” with borrowers contending that lenders failed to sit down with them to advise them of all possible alternatives to foreclosure, said Mike Belote, a lobbyist for the California Mortgage Assn., which represents brokers.

Supporters of the bill were disappointed that Republicans “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. The foreclosure crisis, she predicted, is “probably going to get worse.”

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marc.lifsher@latimes.com