Saying homeowners facing foreclosure need more protection, Attorney General Terry Goddard wants lawmakers to approve a "borrowers' bill of rights."
Goddard said banks and the companies that service mortgages take advantage of people who are trying to save their homes. He said borrowers are often given conflicting information or no information at all.
His proposal would set out in statute the obligations of lenders and loan servicers. Potentially more important, it spells out when they must make "reasonable, good faith efforts" to help a homeowner avoid foreclosure.
Goddard's proposal comes just 2 1/2 weeks ahead of the election where he hopes to oust incumbent Gov. Jan Brewer. The most recent Behavior Research Center poll showed him 11 points behind her among likely voters.
But Goddard denied there was anything political about the plan or its timing. He said this was the soonest he could make it public.
He said federal law did not permit states to impose such regulations until July. As to why he waited until mid-October, Goddard said it was because he didn't want to undermine negotiations taking place with Wells Fargo to get it to modify the loans of some of its borrowers.
Goddard said he and counterparts in other states have worked to get lenders and the companies that collect the monthly payments from borrowers to live by certain standards. And he said lawsuits have been filed against those who have mislead customers.
The problem, he said, is the lenders don't want standards and lawsuits to solve the problems of only the borrowers specifically affected.
One particular problem, Goddard said, is homeowners believe they have agreements with lenders or servicers to give them time to modify the loan terms.
"And then suddenly they get a foreclosure notice their house is sold out from under them," he said. "That's just wrong."
Goddard said this measure helps in several ways. One is it would require that borrowers get prompt answers - he proposes 30 days - on their requests to modify loans.
Some of what Goddard wants may get objections from the lending community.
For example, lenders would have a legal duty to work to avoid foreclosure in situations where a borrower shows "imminent risk of defaulting" because of a financial hardship and where the net present value of what could be paid from a modified loan exceeds what the lender would get in a foreclosure. That could throw roadblocks in the path of lenders who simply want to sell the property and get the loan off the books.
Goddard said the proposal also requires "clear information" from the lender or servicer about how to avoid foreclosure, including whether loan modification is an option.
"Everybody is not going to get a modified loan," he said. "We recognize that and have to start there.
Officials at the Arizona Bankers Association said they had not seen Goddard's proposal and could not comment on it.
Goddard said he has not yet found someone to sponsor his legislation in the upcoming session but presumed some Democrat would be willing to take up the cause.