California approves laws to offer consumers home loan protection

17:20, October 14, 2009      

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California Governor Arnold Schwarzenegger has signed several laws in the past days to address the failures in the mortgage industry to better protect consumers from home loan fraud.

AB 260, one of the most comprehensive new mortgage reform laws in the United States, was signed into law by the governor Sunday night.

The legislation is designed to bring trust and security back to the state's mortgage market, protect borrowers from the most abusive lending practices that caused the foreclosure crisis, and reassure the secondary market that loans bought in California are sound.

"This is a big win for consumers and for the future of California's housing market," Assembly member Ted Lieu said.

He said fraudulent mortgage practices have not only devastated California's economy and caused record rate of unemployment, they have also triggered a national and international financial meltdown.

Specific provisions of this bill include: prohibiting the 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.

This bill 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 sub-prime loan.

Besides AB 260, the California governor also signed other bills for home loan protection, including SB 36, which sets licensing requirements for all residential loan originators, and SB 239, making it a felony to commit fraud on a mortgage loan application.

"California has finally taken the first step towards reining in the excesses of banks and brokers," said Pedro Morillas, CALPIRG Consumer Advocate.

California continues to be ground zero for home foreclosures in the United States which is thought to be a direct result of irresponsible lending.

According to Realty Trac, California experienced 92,326 foreclosure filings in August this year, amounting to one filing approximately every 30 seconds.

Nationwide, there is one foreclosure filing for every 13 seconds, statistics showed.

There are over 6,600 home foreclosure filings per day, according to the Center for Responsible Lending, a nonpartisan watchdog group based in Durham, North Carolina.

With nearly 2 million already this year, the flood of foreclosures shows no sign of abating anytime soon.

Michael Barr, the U.S. Treasury Department's assistant secretary for financial institutions, said in a testimony before Congress that more than 6 million families could face foreclosure over the next three years.

"The recent crisis in the housing sector has devastated families and communities across the country and is at the center of our financial crisis and economic downturn," Barr said.

Source:Xinhua
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