This past week, California’s Governor Schwarzenegger vetoed a bill that aimed to severely reform the mortgage loan industry. Advocates of the bill state that the bill would have addressed many of the problems that we are now paying the price for here in California. In particular, many aspects of the bill would introduce increased oversight of mortgage brokers and restrictive measures against specific lending practices.
Mortgage Reform Bill Summary AB 1830
- Outlaw many negative amortization loans ( home owners monthly payment is less than interest due on loan) because many now owe more than their homes are worth
- Prevent mortgage brokers from steering borrowers into more expensive and riskier loans if they qualified for lower-cost mortgages
- Prepayment penalties would be capped
- A lack of fiduciary duty to borrowers could result in loss of state licensing and up to $10,000 for each violation.
Schwarzenegger’s Reasons Behind The Veto
- Restrictions would have only applied to state-regulated mortgage brokers
- Federally charted banks would not be regulated and this would lead to unequal protection for consumers
- Increased litigations where plaintiffs have much to gain and little to lose. Lenders and defendants would not be able to recover legal fees.
- Increased restrictions and disclosures would lead to consumer confusion
The Housing Bills He Did Pass
In July, Governor Schwarzenegger passed a bill, addressing the increasing inventory of foreclosures in California, requiring mortgage lenders to contact specific borrowers (loans made in 2003 to 2007) to discuss loan modifications prior to starting their foreclosure proceedings. He also approved bills requiring brokers to disclose their state license number upon first contact and allow regulators to suspend licenses for violations of state law.
In a related veto, Schwarzenegger stopped a bill requiring lenders to give a 90 day notice of adjustable rate loans about to reset higher with details of increased monthly payments. Again, Schwarzenegger cited that such notifications could lead to confusion.
Here in California, reform bills such as these could do a lot to prevent fraudulent brokers and illegal activity. Although this Mortgage Reform Bill did not go through, there are still ways to protect yourself from such predatory lending. Be sure to read my “3 tips to avoid getting taken advantage of” if you are interested in more information.
(10 votes, average: 4.9 out of 5)
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His reasons don’t seem to really be reasons at all. Maybe Schwarzenegger should leave it to the consumers to decide if they are going to be confused.
In the mortgage industry, I’ve heard numerous arguments that the implementation of such reforms would be an unfair advantage and easily confuse some borrowers. There’s already stacks of paperwork to take care of, and sometimes, the extra disclosure may just give individuals cold feet.
But, listening to both sides, your definitely not alone Ed. Luckily, you do have a choice, and it is still up to the individual themselves to make sure they are not victims of predatorial lending.