Governor Signs Mortgage Reform Bills To Prevent Another Crisis
SACRAMENTO, Cali., Oct. 12 - Governor Schwarzenegger announced via press release the signature of a collection of mortgage reforms to curb abuses that created the mortgage crisis. “The Governor’s approval of these measures is a message that California can no longer be the wild west for the lending industry,” said Pedro Morillas CALPIRG Consumer Advocate.
The most far reaching of the bills, AB 260 by Assemblymember Ted Lieu (Torrance), addresses the fundamental problem that brokers were given incentives to cheat consumers. “The new rules are spelled out in plain English. Brokers have to act in the best financial interest of their client,” added Morillas.
In addition to the broad proclamation that brokers can no longer pad their bonuses at the expense of the consumer, AB 260 puts limitations on specific products. Loan features that trapped many borrowers in loans with payments that would eventually spike to unmanageable amounts will now have to give consumers a reasonable way out. Other products that created kickbacks for brokers to steer borrowers into more expensive products than they qualified for are also limited to reduce the risk.
Another, more specific legislation addresses the problem of language disparities in lending contracts. AB 1160 by Paul Fong (Mountain View) requires lenders to provide borrowers with a copy of the loan terms in the language the mortgage was negotiated in. According to Morillas, “It is unreasonable to expect borrowers to take nothing more than a broker’s word on the terms of one of the most significant purchases of their lives.”
A third, more procedural, reform by Senator Ronald Calderon establishes standardized licensing requirements for loan originators and brokers in California. SB 36 is especially powerful in combination with the other reforms. Not only do brokers and banks have new duties to consumers, but it will also be easier to hold them accountable to those rules.
Here is a link to the Governor’s press release, and a list of all of the reforms he signed. http://gov.ca.gov/press-release/13574/
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