The securitization industry may be about to reap the whirlwind of its failure to take the need for reform seriously. As we’ve indicated, industry incumbents have adopted a denialist approach to widespread evidence of serious documentation problems and procedural abuses, and have fought reasonable, pro investor proposals tooth and nail.
The Washington Post reports on several pending legislative proposals in the state of Virginia, all of which seek to level the power imbalance between the financial services industry and mortgage borrowers. The interesting thing about this pushback is that Virginia is not at all left leaning state. These measures instead appears to result from the fact that it has one of the fastest foreclosure processes in the US.
As the Washington Post tells us (hat tip Lisa Epstein):
Homeowners…would be given more time to defend themselves under one proposal. Another bill would require lenders to get the approval of a judge before seizing a home. A third would give homeowners a last-minute chance to avert foreclosure by catching up on overdue payments.
The effort to transform Virginia’s foreclosure process faces an early test Monday, when one of the more far-reaching bills is scheduled for a hearing and a vote in a House subcommittee. The measure would force banks to maintain up-to-date records on Virginia loans in government offices, potentially restraining global trade in these mortgages.
Note that the proposal to require judicial approval before a foreclosure sale is forward-looking and would not affect current foreclosures. But it also would represent a meaningful impairment of lender’s rights in that state. Virginia is a “deed in trust” state, which means the lenders holds title to the house until the mortgage loan is satisfied. The second proposal, to give borrowers the right to cure a default up to the time of the sale of the home, sounds nice but probably does not add up to much.
Giving a borrower the additional time between when a foreclosure is final to when the property is sold to get current is unlikely to lead to more “cures” but would give borrowers more time to mount a legal defense. Nevertheless, it would be far more meaningful to give borrowers clear rights to see the bank’s payment records and detailed calculation of the amount claimed to be due and owing, as well as a process that would allow borrowers to challenge errors and obtain speedy corrections of mistakes and related inappropriate fees.
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