What is being touted as a landmark mortgage reform law sponsored by state Assemblyman Ted Lieu was signed by Gov. Arnold Schwarzenegger on October 7th.
Assembly Bill (AB) 260 will address the systematic failures in California’s mortgage industry, Lieu said.
“California is no longer the Wild West,” said Lieu. “Although it took two years, I am pleased to have been able to overcome the powerful interests blocking reform so that future generations won’t ever experience this type of crisis. This is a big win for consumers and for the future of California’s housing market.”
According to RealtyTrac, California experienced 92,326 foreclosure filings in August, amounting to approximately one filing every 30 seconds.
Specific provisions of this bill include the prohibition of steering of borrowers into higher-priced loans that are more risky than lower-interest, fixed-rate loans for which the borrower had actually qualified; banning negative amortization loans where the loan gets larger the longer the borrower holds the loan; and putting strict caps on prepayment penalties, according to Lieu.
AB 260 also enacts a strong fiduciary standard for all mortgage brokers and banks acting as mortgage brokers, and prohibits lenders and brokers from making false or misleading statements relative to the terms of a subprime loan.
The legislation was joint-authored by Assembly Speaker Karen Bass of Los Angeles and Assemblyman Pedro Nava.
Consumer advocate groups applauded Schwarzenegger for signing the bill into law.
“California has finally taken the first step towards reining in the excesses of banks and brokers,” said Pedro Morillas, CALPIRG consumer advocate.
Lieu said that the new legislation would protect California homeowners from suffering the fate of foreclosure that many have endured during the mortgage crisis.
“Fraudulent mortgage practices have not only devastated California’s economy and caused record unemployment, they have also triggered a national and international financial meltdown,” said Lieu. “This new law cracks down on some of the most abusive lending practices and places significant safeguards on the industry to ensure this crisis never happens again.”