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Home > Mortgage Reform Bill
Mortgage Reform Bill
OAKLAND, Calif., Sept 25, 2008 /PRNewswire-USNewswire via COMTEX/ -- Puts brokers ahead of public in the midst of economic crisis Vetoes all bills protecting consumers and changing market for the better Gov. Schwarzenegger vetoed AB 1830 today, the California legislature's strongest piece of legislation designed to rein in the abuses in the mortgage market. His action comes on the same day that Congressional leaders announced they had come to an agreement on a bailout package designed to mitigate a crisis brought on by reckless and abusive lending and a lack of regulation and oversight.
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"The governor has abdicated his responsibility to protect California home-buyers, and has missed a critical opportunity to restore common sense to California's mortgage market," said Paul Leonard, director of the California office of the Center for Responsible Lending. "He is not interested in attacking the root causes of problems but would rather maintain the status quo that brought us the problems in the first place."
State-regulated lenders originated 60 percent of subprime loans during the subprime heyday. States have the authority and obligation to protect its own citizens from these lenders, as other states, including most recently New York have done.
One of AB 1830's key provisions which the governor opposed would have allowed borrowers harmed by predatory loans to enforce the law and seek relief. Gov. Schwarzenegger vetoed the legislation on the grounds that such a provision would have increased "de minimis" litigation.
"One wonders if the governor knows that over 100,000 Californians lost their homes in the first half of the year due to predatory loans," said Leonard. Even Federal Reserve Board Chairman Ben Bernanke called those problematic loans "unfair" and "deceptive," while the former head of the Mortgage Bankers Association acknowledged in a Sept. 15 American Banker article that "We forgot about our customers, and making money and our commission checks were more important." Gov. Schwarzenegger's veto comes on the heels of his statement yesterday pressuring Congress and the Administration to rush to complete a bailout package without any mention of California's record foreclosures, distressed homeowners and devastated communities.
Contrary to his press statement today announcing the signing of bills designed to "protect California homeowners and homebuyers," the bills receiving his signature do precious little to protect consumers. In fact, Gov. Schwarzenegger's crisis-related efforts to date have focused on the negative consequences of foreclosure rather than tightening lending regulations so sorely needed. Gov. Schwarzenegger announced an agreement with loan servicers last November which has had limited success in stemming the rising tide of foreclosures, and signed SB 1137. These initiatives, however, address only the consequences of excessively risky lending, but do nothing to fix the regulatory framework of the mortgage marketplace. "California is experiencing 1,300 foreclosures every single day," as a result of loose lending practices, said Leonard. "Has Gov. Schwarzenegger even read the papers, seen the balance sheets of California cities losing tax revenue, or visited the neighborhoods wrecked by foreclosures?"
AB 1830 included key reforms, such as establishing that for all home loans, brokers have a fiduciary duty to their clients and must put the borrower's economic interests ahead of their own. Brokers are also prohibited from steering borrowers to loans that are more costly than what the borrower would qualify for. AB 1830 also adds to recent federal regulations by capping the size of prepayment penalties, the expensive exit fee that traps borrowers in subprime loans. The final version of AB 1830 vetoed today, sponsored by Assembly Member Ted Lieu (D-Torrance) and Speaker Karen Bass (D-Los Angeles), would have taken California a step in the right direction. But it paled in comparison to the earlier reform package passed by the Assembly in May, and to state mortgage reforms in less heavily impacted states like New York, Connecticut, North Carolina and Minnesota.
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