Loan Modification – California State Senate Bill 94 Criticisms

December 18, 2009 by  Filed under: Loans 

The State Senate of California has passed Senate Bill 94 in the hopes of putting a cap on the rising foreclosure rates in the region. Passed early this year, the said Bill aims to provide protection to consumers and distressed homeowners from loan modification California scams.

The Bill is said to have an encompassing effect on California mortgage and the overall loan modification practices in the state. According to the provision stated in SB 94, borrowers can approach their lenders directly for mortgage restructuring assistance and that paying an intermediary or a “third party” to arrange the mortgage process is not anymore a necessity.

Although the Senate Bill 94 is gearing towards upholding the rights of homeowners with troubled mortgages, there are still various private housing and real estate sectors against this Bill. Here is a rundown of arguments and loopholes presented by the opposition against SB 94.

1. The Bill does not take into account the fact that a number of legal companies that do loan modification in California still exist. In fact, a huge percentage of successfully modified loans in the state were made possible through the help of a third party. Critics of the Bill are saying that it lacked the required quality of research and statistics to back the State Senate’s disregard of the role of agencies in arranging mortgage modification for homeowners.

2. Critics are saying that SB 94 has just rehashed a common law that has been implemented in the state – protecting homeowners from frauds or scammers. According to them, prohibiting companies who assist homeowners wishing to modify mortgage deals from asking for advance fees will not stop the rise of scams and fraudulent activities.

3. The process of modifying mortgages is a long ordeal and a third party will help ease that ordeal. Lending institutions could very well benefit from the assistance rendered by a middleman to make sure that all requests are catered and responded to in time. This is something that authors of the bill have failed to take into account.

4. The State Senate should instead put together a law that would make the process faster and smoother instead of cutting out the roles of mortgage restructuring agencies.

5. Middlemen will serve as a buffer against abuses in the system. Without the help of these agencies, lenders are more prone to taking advantage of a homeowner’s ignorance of the whole mortgage system. In reality, lenders do not modify loans out of kindness or altruism. They agree to alter the terms and conditions of the mortgage because they will also benefit financially from the whole deal. Without proper advice and assistance that agencies could provide, homeowners will most likely fall into the trap of accepting whatever deal or interest rate their lenders give them.

Senate Bill 94 is indeed a bold attempt to fix the complex structure of the mortgage system in California. On the other hand, if the issues surrounding this law are not addressed, it might only do a double-edge sword effect on the lending practices in the state. In the end, it might not be able to fulfill its mission of upholding the rights of troubled homeowners when actions are not taken to patch these loopholes.

A computer graduate and loves to travel. Reading current news in the internet is one of his past times. Taking pictures of the things around him fully satisfies him. He loves to play badminton and his favorite pets are cats and walk with them in the park with some dogs.

Visit the Federal Loan Modification homepage or the How to Loan Modification page for more information and details.

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