WASHINGTON (Reuters) - The housing regulator for mortgage-giants Fannie Mae and Freddie Mac on Tuesday said laws under consideration in California to halt illegal foreclosures could restrict mortgage credit and hamper necessary home seizures.
In a letter to California legislators, the Federal Housing Finance Agency disclosed concerns with a measure to increase civil penalties for so-called "robosigning" of mortgage documents and a proposal that attempts to protect delinquent borrowers from losing their homes.
The term robosigning describes the practice of bank workers signing off on foreclosure documents en masse without verifying information in the paperwork.
The regulator said the proposed legislation in California would loosely define robosigning in a way that may include any incomplete mortgage document.
"Such a strict liability approach is punitive, will have a chilling effect on the processing of lawful foreclosures and...may lead to reduced credit availability or higher interest rates," according to the letter from FHFA's General Counsel, Alfred Pollard, to state senators and assembly members.
The regulator also raised concerns about a proposal that would give more protections to tenants whose rentals are in the foreclosure process. Pollard said the legislation does not include a "bona fide" lease requirement and could result in property owners gaming the system.
The regulator also claimed the two measures would go beyond the recent $25 billion multistate settlement with five large U.S. banks over foreclosure practices such as robosigning, and could possibly pose "significant risks for the housing markets."
Some attorneys general disagreed over the scope of the final mortgage accord, including California Attorney General Kamala Harris. California, which has the highest number of properties in the foreclosure pipeline, has since taken the lead on using federal dollars from the settlement to offer mortgage relief.
(Reporting by Margaret Chadbourn; Editing by Andrew Hay)