A new bill introduced in the California state legislature could limit the ability of lenders to offer flexibility to consumers who are experiencing financial hardships due to the COVID-19 pandemic, ABA and six other housing and finance groups warned in a letter this weekend.
The bill would create several new state-level forbearance, loan modification and notice requirements, undermining existing efforts—including those put in place by the CARES Act—to assist borrowers. The groups warned that these provisions would create “duplicative and sometimes contradictory requirements for the mortgage and auto finance industries,” which would “have the potential to significantly disrupt access to credit for California borrowers.”
Specifically, the groups noted that the bill’s mortgage-related provisions could cause disruption in the secondary market and cause lenders to lose their security interests in the collateral, which could affect the GSEs’ ability to purchase or insure mortgages for California homebuyers. Additionally, both the mortgage and auto finance provisions would “significantly interfere with the ability of certain federally chartered financial institutions to engage in the business of banking,” they noted.