After a somewhat contentious six month battle, California lawmakers put the finishing touches on what they hope will be a fair compromise for the foreclosure-prevention legislation.

The measure is part of a larger Homeowner Bill of Rights package of bills sponsored by state Atty. Gen. Kamala D. Harris aimed at helping borrowers who are behind on mortgage payments avoid foreclosures. A draft of the bill was made public late Friday.

The bill would lock into California law many of the terms of a national foreclosure lawsuit settlement with five big banks.
“The California Homeowner Bill of Rights will help ensure that struggling California borrowers with the means and desire to stay in their homes will have real access to a process that will allow them to do so,” Harris said in a statement.

A two-house legislative conference committee is expected to approve the bill, SB 900, next week and send the package to the floors of both the state Assembly and Senate for final debates and votes.

Passage by the conference committee, which has four majority Democratic and two Republican members, is considered assured now that a key, business-friendly Democrat, Sen. Ron Calderon of Montebello, has signaled his support.

The bill contains a number of provisions that have rankled bankers, mortgage servicers and their allies in the real estate industry.

One such provision would require mortgage loan servicers to give their borrowers a single point of contact instead of bouncing them around from office to office.

A second would limit banks’ ability to begin a foreclosure process if the borrowers have filed documents requesting a loan modification that would lower their monthly payments.

A third provision would give homeowners the ability to sue servicers, under certain restrictions, alleging that they were wrongly foreclosed upon.

There is growing concern that REO agents do not know enough about the terms of the $25 billion robo-signing settlement – and this could lead to a lot of uncertainty and legal fees.

The five major servicers Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial settled charges of past foreclosure abuses and mishandled documentation with the 49 state attorneys general and federal prosecutors in March.

Servicers are adjusting to a slew of new requirements, including for third-party oversight. These provisions will hold the banks accountable for fees they pay to firms who handle everything from documentation to asset management and REO.

Servicers will have to justify why they are paying someone and for what.

“Servicer shall not pay volume-based or other incentives to employees or third-party providers or trustees that encourage undue haste or lack of due diligence over quality,” according to language in the settlement guidelines.

This can apply to REO agents and brokers who handle the listings, and take fees for things like broker-priced opinions, trash-outs, inspections and other services.

In some instances, agents take the money and either don’t do the work or do not do it well enough. The AGs are specifically looking to crack down on BPOs, because poor valuations on foreclosed properties harm values for surrounding homes.

Jim Taylor, who handles REO management for Wells Fargo, warned agents to sure up their businesses personally.

“If you’re required to do something like an inspection, and you had someone else do it, you’re at risk,” he said. “Anyone who touches an REO transaction will be affected.”

Some agents have complained that the settlement came about because of the servicer’s problems, not theirs. Still, some of the consequences will still land on the shoulders of these real estate agents.

So be prepared.

Are you aware of the new rules? How are you educating yourself?

This may be one of the worst cases of real estate fraud we’ve seen in California yet.

Aldo Joseph Baccala, a 71-year-old Sonoma County man, was charged on Tuesday with 167 felony counts including securities fraud, elder abuse and grand theft once his $20 million dollar Ponzi scheme was discovered.

The scheme began when Baccala told elderly customers of his company, Baccala Realty, and assured them that he would invest their money in real estate and give them 12 percent returns on their investments. Many of the victims had known Baccala and his family for many years. Instead, he used the money to pay early investors and invested in the stock market.

Between 2003 and 2008, Baccala lost $8 million in the stock market. He found new investors and promised them a return of 27 and a half percent. However, once the stock market plunged in 2008, Baccala told his investors he could not make the promised monthly payments.

The Sonoma County District Attorney Jill Ravitch began investigating Baccala in January 2009, Attorney General Kamala Harris and her team later joined. Both DA’s will be prosecuting Baccala.

Baccala is currently being held at the Sonoma County Adult Detention Facility with his bail set at $2 million.

California homeowners got some welcome news this week when Fannie Mae and Freddie Mac signed on to participate in Keep Your Home California, a $2 billion foreclosure prevention program intended to make it easier for homeowners to reduce the principal owed on their mortgages.

This move came after California officials dropped a requirement of Keep Your Home California that asked banks to match taxpayers’ funds when homeowners receive mortgage reductions through the program.

The state, with money allocated to it by the federal government, will contribute all of the money to the program and help fewer California borrowers than originally proposed. The program is run by the California Housing Finance Agency and uses money that was reserved for the 2008 Wall Street bailout. Financial institutions will be required to make other modifications to loans that are reduced such as interest rate reductions or changes to the terms of the loans. The changes to the program will roll out in early June, officials with the California agency said.

The California agency estimates as many as 8,500 to 9,000 borrowers could be aided under the changes to the principal reduction component of the program. The state agency will also increase to $100,000 from $50,000 the amount of aid borrowers can receive.

The Treasury Department originally announced the Hardest Hit fund (HHF) in February 2010 as a $1.5 billion program for five state housing finance agencies where home prices dropped 20%: Arizona, California, Florida, Michigan and Nevada. It soon grew through three additional rounds of funding to a $7.6 billion program going to 18 states and the District of Columbia.

The money was meant to develop programs and entice mortgage servicers to provide modifications, short sales, unemployment assistance and principal reduction. Treasury approved the first programs in June 2010 and initiatives in other states roughly three months later.

In April, Freddie Mac, in a letter to its servicers, said mortgage servicers must participate in Hardest Hit Fund transition assistance programs from 18 states and the District of Columbia through short sales and other foreclosure alternatives.

Over the life of the Hardest Hit Fund, which ends in 2017, the state housing finance agencies across the nation estimate helping 459,000 homeowners with some sort of relief.

Will this bring more homeowners to the table in California?

Fifth Third Bank now joins Bank of America in the courtroom – both have, as of Friday, been hit with putative class action lawsuits claiming they gained millions of dollars in illegal referrals and kickbacks from private mortgage insurers.

The almost-identical suits have been filed in Pennsylvania federal court by the same law firms. In each case, the lenders are being accused on violating the Real Estate Settlement Procedures Act (RESPA,) reducing competition and boosting homeowner’s premiums.

From 2004 to 2011, BofA and Fifth Third Bank brought in millions of dollars in purported premiums but only paid out a fraction in claims. Fifth Third Bank received $54 mil in supposed premiums but paid less than $5 mil out in claims, while BofA got $285 mil and paid out around $59 mil. This helped the banks reduce their own risk while leaving insurers taking on almost all of the risk themselves.

Along with BofA and Fifth Third Bank, other defendants named are six private insurance companies, including United Guaranty Residential Insurance Co. and PMI Mortgage Insurance Co. BofA additionally named Triad Guranty Insurance Corp. as a seventh insurer.

It seems BofA and Third Fifth Bank are just following in the footsteps of HSBC USA Inc., which faces the same sort of suit, filed March 12. Finally, those greedy companies may finally have to pay up for what their actions have caused the people, the housing market and the economy.

Do you think the banks have a chance at winning the suits?

Managers at Wells Fargo and other major banks ignored widespread errors in the foreclosure process and, in some cases, instructed employees to adopt made-up titles and push documents through the system despite internal objections, according to a wide-ranging review by federal investigators.

The banks have largely focused the blame for mistakes on low-level employees, attributing many of the problems to the surge in the volume of foreclosures after the housing market collapsed and the economy weakened in 2008.

But the report concludes that managers were aware of the problems and did nothing to correct them. The shortcuts were directed by managers in some cases, according to the report, which is by the inspector general of the Department of Housing and Urban Development.

“I believe the reports we just released will leave the reader asking one question – How could so many people have participated in this misconduct?” David Montoya, the inspector general of the housing department, said in a statement. “The answer – simple greed.”

At Bank of America, which until late last year was the nation’s largest mortgage servicer, two employees testified that they had raised concerns about whether documents were being properly notarized, but managers told them to proceed. One vice president said documents in her department were checked only for “formatting and spelling errors,” not the underlying figures or facts in the case.

At San Francisco’s Wells Fargo, now the nation’s largest mortgage servicer and originator, employees told the inspector general’s office that the company’s management had assigned them bogus titles, including “vice president of loan documentation,” even though they had no training in document review. Before becoming vice president, one employee worked at a pizza restaurant.

And instead of remedying the problems, Wells Fargo’s management shortened the review period to less than 48 hours instead of five to seven days, the employees said.

The banks have argued that despite document errors, foreclosures were justified because borrowers had fallen behind on their payments. But the report, which focused on foreclosures from 2008 to 2010 of federally backed loans serviced by five major banks, suggests that the banks violated state laws governing the foreclosure process.