California Banker Issue 5 2025

A California Legislature’s self-inflicted wound makes it harder to get a loan By Kevin Gould, President & CEO, California Bankers Association

new law embedded in a budget trailer bill makes it harder to get a second or subordinate mort gage in California. While the measure aims to address so-called “zombie” subordinate mort gages, where borrowers believe their debt has been forgiven only to face renewed collection efforts, it was poorly written and has created broad, unintended consequences. In summary, the new law insensibly makes legal and lawful actions by lenders unlawful and places impedi ments on collateral recovery when borrowers stop mak

ing payments. Why is that a big deal? Because lenders will be disincentivized to make new loans because of in creased risk and will hamstring efforts to help distressed borrowers avoid foreclosure. Let’s set aside how the new law passed by the Legisla ture violates state and federal constitutionally protected rights of lenders and focus instead on how legislators’ actions have hurt the constituents they represent. Consider the many ways in which subordinate mort gages matter.

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