The Oakland agency pitched a first-of-its-kind ordinance to a county supervisor's committee Monday. It would require banks to alert the county when a mortgage changes hands. The transparency would allow struggling homeowners to more easily negotiate with the owner of their note, Housing and Economic Rights Advocates wrote in a memo. It would also prevent illegal foreclosures and require banks to maintain derelict foreclosed house, said advocates Executive Director Maeva Elise Brown.
"If we knew who the owner of the debt was, we'd know some of what their contractual obligations are," she said. "I think the county is well within its power to protect the health and safety of its citizenry."
During a brief Public Protection Committee discussion, supervisors Federal Glover and John Gioia suggested the ordinance might work better at a state level and questioned how it would be implemented, but asked for more information.
Brown, speaking to the Times before the meeting, said her agency works with struggling clients to secure loan modifications to stave off foreclosure. Success stories are few and far between, she said.
"You're kind of negotiating with this black hole. You're negotiating with these middlemen who's paid by somebody ... but you don't know who," she said.
Loan service's tell Brown's attorneys they are not allowed to reveal the owner of the debt or they do not know the owner, she said.
"It's a nationwide phenomenon. They're packaged sometimes, sold more than once to different investment pools and when we're working to negotiate ... we're hitting a brick wall."
A coalition of state attorneys general and regulators tracking loan modifications among the Top 20 loan service's found that last year the number of workouts dropped from three of every ten loans to two every ten loans in the last quarter.
Complicating matters is a system set up to streamline banks changing ownership. Instead of banks recording an assignment deed with the county when they sell a loan, they often enter the Mortgage Electronic Recording System, a behind-the-scenes holding company. Once a bank files an assignment deed to the system, it can change hands infinitely without the county recorder's office documenting anything, said Clerk-Recorder Steve Weir.
The system, created by the real estate finance industry, is touted as a way for lenders to eliminate paperwork, costs and delays.
Once a property enters default, Brown says the homeowner cannot be sure the bank filing the foreclosure paperwork actually owns the note.
In other states, where banks must go through court to foreclose on a house, judges have thrown out cases because the wrong lending institution filed the default paperwork.
"I'm really concerned that in our state this is already happening," Brown said.
Riverside County requires banks to register vacant foreclosed properties with the county, but Brown says she wants an ordinance that would prevent homes from reaching that point. She says banks should easily be able to register with the county.
"Now if their system is so screwed up that they don't know who's on first base, then I have to question the rightfulness of their collection in the first place," she said.
Her group has also pitched the idea to Alameda County.
