California Gov. Arnold Schwarzenegger signed several mortgage-related pieces of legislation into law this week, including A.B.260, which, among other measures, prohibits the steering of borrowers into loans that are riskier than lower-interest, fixed-rate loans for which they actually qualify.
The bill, introduced by Assemblymember Ted Lieu, D-Torrance, also bans negative amortization loan products and limits prepayment penalties to no more than 2% of a loan balance. A.B.260 additionally enacts a fiduciary standard for mortgage brokers and prohibits lenders and brokers from making false or misleading statements about subprime loan terms.
The law takes effect Jan. 1, 2010.
‘The new rules are spelled out in plain English. Brokers have to act in the best financial interest of their client,’ Pedro Morillas, a consumer advocate with the California Public Interest Research Group, said in a statement posted on the group's Web site.
Schwarzenegger also signed three bills from Sen. Ron Calderon, D-Montebello, including S.B.36, which sets licensing requirements for originators, and S.B.94, which places an immediate ban on up-front charges in relation to loan modification services.
‘This kind of mortgage protection simply couldn't wait,’ Calderon said in a statement dated Oct. 14. ‘The governor and I were on the same page all the way in sheltering homeowners and buyers from people who, for their own profit, complicate and make the loan modification process more painful.’
Calderon's S.B.237, which requires appraisal management firms to register with the state's Office of Real Estate Appraisers, received praise from the Appraisal Institute.
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‘This new law will help to protect both consumers and appraisal professionals in California, and we eagerly anticipate the positive effects it will provide to the state's real estate market and its residents,’ said Appraisal Institute President Jim Amorin. California becomes the sixth state in the U.S. to adopt such a law.
A.B.957, also signed into law, allows buyers of real estate owned properties to choose escrow officers rather than be forced to use a seller-selected escrow company. Like S.B.94, A.B.957 – The Buyer's Choice Act – is an ‘urgency measure,’ meaning it takes effect immediately.
The bill's author, Assemblymember Cathleen Galgiani, D-Livingston, hopes its passage will encourage greater use of local escrow companies.
‘Local escrow businesses can better assist buyers and expedite the transfer of foreclosed properties to homeowners at [a] lower cost,’ Galgiani said in a statement. ‘It also promotes competition for services and protects local jobs and our local economy.’
Other bills approved by Schwarzenegger include S.B.239, which makes it a felony to commit fraud on a loan application, and A.B.329, which requires reverse mortgage lenders to provide prospective borrowers with housing counselor contact information and a checklist ‘specifying issues the borrower should discuss with a reverse mortgage counselor.’
Also signed into law was A.B.1160, which essentially requires the state to create a glossary that translates certain key mortgage terms into Spanish, Vietnamese, Chinese, Korean and Tagalog. Lenders are then required to distribute the glossary of translated terms to borrowers who primarily negotiated their loans in one of those languages, the California Mortgage Bankers Association says.
– John Clapp, editor, Servicing Management
CORRECTION: This report's description of A.B.1160 was changed on Oct. 16 to more accurately summarize the legislation's requirements. The report originally stated that loan documents had to be written in the same language as verbal negotiations were conducted.