New Mortgage Laws

California is the state hit hardest by the mortgage crisis with more foreclosures than any other. This past weekend, Governor Arnold Schwarzenegger signed seven bills into law that increase borrower protection in the state.  Mortgage laws vary greatly across the country, but these changes could be a preview of what could happen in your state.

The first is AB 260 which takes effect January 1, 2010:

  • Mortgage brokers will now have a fiduciary duty to place a borrower’s best interests first.
  • No longer will brokers be able to steer borrowers into higher risk, more expensive loans when the homeowner qualifies for one at a lower cost.
  • The law bans brokers from being compensated for arranging a higher priced loan with prepayment penalties.
  • It limits pre payment penalties to 2% of a loan’s outstanding balance.
  • State regulators will be allowed to enforce existing federal laws.
  • AB 260 outlaws negative amortization loans that offer payment choices which won’t at least keep pace with interest.
  • State regulated independent brokers who violate the law would be liable to the borrower for the amount of damages plus attorneys fees and court costs if applicable.  Brokers could also lose their licenses and face fines of $10,000 per violation

Most striking about the legislation’s approval is that it was opposed by the California Association of Mortgage Brokers, the California Mortgage Association and the California Association of Realtors, yet the bill was signed by a pro-business Republican Governor with substantial real estate holdings of his own.

Here’s a look at other real estate bills Governor Schwarzenegger signed:

  • SB 36 requires those who originate mortgages to obtain a license from the Department of Corporations after meeting specific criteria. Current real estate licensees would not need a new license but would have to be endorsed by the Department of Real Estate to originate loans.
  • SB 239 makes it a felony to submit a fraudulent mortgage application.
  • AB 329 increases transparency to those senior citizens who are contemplating a reverse mortgage which allows homeowners to borrow against the equity in their homes. It mandates counseling for the homeowner from an independent third party not linked to the lender.
  • SB 237 requires appraisal management firms to register with the Office of Real Estate Appraisers.
  • AB 957 lets buyers of foreclosed homes use local escrow officers instead of those chosen by the lender.
  • AB 1160 mandates that the mortgage documents be written in the same language that was used for the verbal negotiations.

Since California is often a model for other states, you can expect to see similar bills introduced elsewhere.

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