Anti-Predatory Lending Bill Passes California Assembly

As federal lawmakers continue to pour over proposals that would tighten anti-predatory lending statutes throughout the nation, California may become one of the first states to enact its own mortgage reform legislation.
Earlier this week, the California Assembly passed AB 260, and it has headed to the state Senate for review. The bill was sponsored by ""Assemblymember Ted Lieu"":http://democrats.assembly.ca.gov/members/a53/Pressroom/Press/20090601AD53PR01.aspx (D-Torrance), who says the measure will ""ban the worst predatory lending practices.""
The bill would create a stronger fiduciary standard for mortgage brokers in the state, across all loan products. It eliminates compensation incentives, namely yield-spread premiums, that lenders pay to brokers for contracting higher- or adjustable-rate loans, such as those which prevailed in the subprime era.
AB 260 directly prohibits steering borrowers toward inferior mortgages and explicitly bars brokers and lenders from making false or deceptive statements regarding subprime loans. The bill also limits prepayment penalties, bans negative amortization loans, and establishes strong enforcement and punishment for abusive subprime lending. The measure would give the state Attorney General the power to revoke state licenses and impose a $10,000 fine per violation.
""Enough is enough,"" said Lieu, who is presently in the running for the California Attorney General seat. ""We must act to preserve homeownership opportunities and prevent the next crisis in the subprime lending market.""
Lieu points out that homeowners in California continue to experience record foreclosures as a direct result of irresponsible lending. According to RealtyTrac, one in every 138 homes in the state received a foreclosure filing in April - the highest state foreclosure rate in the nation. Total foreclosure activity in California is up 42 percent from April of last year.
Assembly Speaker Karen Bass (D-Los Angeles) commented,""So many Californians bought homes to provide a foundation for their families only to have it undermined by irresponsible lenders and faulty lending practices. Assemblymember Lieu’s AB 260 is real reform of the mortgage industry that will give homebuyers the piece of mind they need to invest in and stabilize our economy.""
A similar mortgage reform bill authored by Lieu, AB 1890, was vetoed by Gov. Arnold Schwarzenegger as soon as it hit his desk last year. The governor said that while the legislation was ""well intentioned,"" it was unbalanced and would stifle competition within the marketplace because the new statutes did not apply to federally regulated entities.
But since that time, Gov. Schwarzenegger has issued a pointed call to lawmakers to do something about the spiraling housing crisis in California and publicly commented that mortgage reform is now a top priority. Lawmakers hope AB 260 will see Gov. Schwarzenegger's signature. A spokesperson from Assemblymember Lieu's office told _DS News _they feel the new legislation has been altered enough from last year's AB 1890 version to address the governor's previous concerns and will be better received.
Lieu was also the author of the California Foreclosure Prevention Act, which did find favor with the governor. He signed it into law in February to help stem the state's foreclosures. Effective June 15, the act will impose a 90-day foreclosure moratorium unless a lender offers a comprehensive loan modification program designed to keep people in their homes.