MBA, Trade Groups Oppose ‘Fundamentally Flawed’ California COVID Relief Bill

The Mortgage Bankers Association and nearly two dozen other industry trade groups sent a letter this week to California legislators, strongly opposing as “fundamentally flawed” and “disruptive” a broad-brush bill aimed at assisting state residents experiencing financial difficulties amid the coronavirus pandemic.

AB 2501, the COVID-19 Homeowner, Tenant and Consumer Relief Law of 2020 (https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB2501) establishes a moratorium on foreclosure actions, mandates specific financial outcomes for mortgage borrower relief and imposes significant new legal liability. Introduced by Assembly Member Monique Limón (D), the bill would extend the moratorium a full 12 months from its enactment.

In a letter to Limón and other state legislators, MBA and other trade groups took strong exception to the broad scope of the bill, citing six key points:

–AB 2501 struggles from a broad scope that may distract from efforts to focus on those truly in need of financial assistance;

–Fails to acknowledge that mortgage servicers are intermediaries that must adhere to contractual obligations and investor guidelines;

–Raises legal and constitutional issues, such as takings and impairment of contracts;

–Introduces the potential for preemption for federally chartered institutions;

–Imposes punitive penalties; and,

–Upends a national approach deployed through the CARES Act and federal agencies.

“California mortgage servicers are in the business of serving their customers, especially when hardship strikes,” the letter said. “Servicers have been motivated to work with borrowers and have, in fact, been doing so since the beginning of the pandemic. The awareness that borrowers might struggle to make their mortgage payments has been readily apparent and proactive efforts have been undertaken in an effort to be responsive. Unfortunately, this measure, from its introduction, takes a punitive and unnecessarily aggressive approach despite efforts by mortgage servicers who were already motivated to assist their customers.”

Despite recent amendments introduced to lessen the impact on mortgage servicers, MBA and the other trade groups continue to have significant concerns with the measure that have been unaddressed. “While we appreciate the intent of the bill, we continue to believe that it undermines the positive impacts of existing efforts and protections and may ultimately delay the speed in extending important relief to impacted borrowers,” the letter said. “While our organizations wish to be collaborative, constructive and solutions-oriented, the measure that is on the Assembly Floor includes provisions that are highly problematic.” 

For example, the industry remains unconvinced with the premise that a foreclosure moratorium is necessary given current relief efforts and existing law protections. “In addition, the foreclosure moratorium applies to anyone with a residential mortgage loan, even those that were delinquent before the pandemic, and is available without regard to whether or not the borrower is experiencing a financial hardship resulting from COVID-19,” the letter said. “The unfocused and overly broad nature of this section creates a significant moral hazard where borrowers can take advantage of the relief provided when they are not experiencing a financial hardship due to COVID-19.”