SACRAMENTO, Calif. (AP) -- The federal government's main regulator of home loans is objecting to mortgage-related bills in California and says they could end up increasing lending costs and harming the housing market.
Lenders say the legislation goes well beyond the terms of the $25 billion settlement announced in February between the nation's largest banks and more than 40 states over foreclosure abuses. They picked up a powerful ally in the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, the government-controlled companies that own about 60 percent of California's mortgages.
The agency's general counsel, Alfred Pollard, said in a letter to California lawmakers that some of the bills, if signed into law, would encourage borrowers to sue lenders.
"Increasing legal risks for lenders and investors — where existing remedies exist and where new language creates incentives for litigation — ultimately creates harm for all homeowners," he wrote.
He particularly objected to a bill intended to address "robo-signing," a practice that was targeted in the national bank settlement. It's when banks approve foreclosures without properly reviewing the documentation.
Pollard said the wording is so vague that the legislation could end up penalizing lenders even for unintentional errors or omissions. In turn, that would encourage lawsuits as part of a strategy to stall legitimate foreclosures and result in penalties and attorneys' fees that would add costs for lenders, he said.
Pollard also objected to a bill seeking to protect tenants from being forced out of their rental homes by foreclosures.
He said the Federal Housing Finance Agency is concerned that the legislation could encourage abuse of the foreclosure process by letting property owners rent distressed properties to friends and family members. That would allow them to take advantage of the bill's restrictions on evicting tenants and foreclosing on the property.
Pollard's comments are in a five-page letter to lawmakers dated Friday and obtained by The Associated Press this week. The bills were proposed by state Attorney General Kamala Harris, who helped secure $18 billion for California in the bank settlement, and are awaiting action in a conference committee.
Lenders are objecting to the bills in part because they would make permanent in state law provisions of the nationwide settlement that were intended to address temporary concerns about the lending process. Harris' spokesman, Shum Preston, defended her package of mortgage-related bills.
"The legislation is being carefully crafted to provide these homeowner protections while discouraging frivolous litigation and its associated costs," he said.
The federal housing agency and Harris have sparred repeatedly since she took office in 2011.
Fannie Mae and Freddie Mac were not included in the nationwide mortgage settlement, and Harris is investigating their role in 12,000 foreclosed properties in which they acted as landlords. She also is investigating their involvement in selling or marketing mortgage-backed securities.
The conference committee's co-chairwoman, Sen. Noreen Evans, told reporters Tuesday that committee members are debating who should be allowed to file lawsuits to challenge foreclosures and under what circumstances. But the Santa Rosa Democrat said she wants the legislation to include strong penalties to prevent robo-signing.
Lawmakers said the committee intends to work with the lending industry on how best to enforce the requirements.
However, Evans later said she was not swayed by Pollard's letter.
"It's the same old tired excuses we've been hearing from the large lenders for years. They want to continue their abusive practices as always," Evans said in a telephone interview. "The whole idea that shutting down abusive practices by servicers and lenders is going to cause them to pull out of the housing market or cause them to raise prices is a red herring. It's more of 'the sky is falling.'"