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Bill Intended to Stop Predatory Lending Working Its Way Through California Legislature

June 4, 2009

The California legislature is considering a bill that would ban yield-spread premiums and put other restrictions on the mortgage lending industry, the Los Angeles Times reported June 1. Assemblyman Ted Lieu of Torrance wrote the bill, which is intended to stop certain predatory lending practices believed to have contributed to the subprime mortgage crisis and plunge of home prices. The bill has passed the Assembly and must now get through the state Senate before facing Gov. Arnold Schwarzenegger, who has vetoed similar efforts.

AB 260 mainly applies to independent mortgage brokers, who help homebuyers strike lending deals with banks. It gives them a fiduciary duty to their clients, meaning they would have a legal obligation to get clients the best financial deal. The state attorney general could revoke violators' licenses and fine them $10,000 per violation. It also bans negative-amortization loans, which allow such low payments that mortgage balances can actually increase.

But the centerpiece of the law is its ban on yield-spread premiums, which are bonuses paid to mortgage brokers for selling customers loans that are more expensive than the best ones the customers qualify for. The bill makes it illegal for a broker to steer a client into a more expensive loan, limits penalties for prepayment and forbids both brokers and lenders from making deceptive statements about subprime loans. The governor rejected a similar measure last year, saying it was unfair to California lenders because it didn't apply to federally regulated lenders.

As Orange loan modification lawyers, we hope the governor changes his mind. Yield-spread premiums have lost their appeal because the real estate market is so poor, but they remain completely legal and even encouraged by the system. That's a problem because they actually encourage brokers and lenders to deceive homebuyers into spending money unnecessarily. The average homebuyer has no special real estate finance knowledge, which is why mortgage brokers and real estate agents exist in the first place -- to guide them to the best deal. When brokers steer buyers toward loans that are more expensive than the best ones the buyers could get -- and don't tell them -- they are taking advantage of that ignorance to enrich themselves.

Howard Law LLP represents clients throughout Southern California who need help modifying less-than-stellar loans in order to save their homes. Our Ontario loan modification attorneys have had substantial success changing the structure of subprime and exotic loans, as well as interest rates and repayment terms. In many cases, we can use evidence of predatory lending as leverage to get our clients' banks to pay attention -- which they do because they know a predatory lending lawsuit could follow. Our goal is always to get our clients a meaningful, substantial loan workout that lowers their monthly mortgage payments and keeps them in their homes.

If you need help convincing a lender to take your loan modification requests seriously, you should contact the Gardenia loan modification lawyers at Howard Law as soon as possible. For a free, confidential consultation, you can reach us online or toll-free at 1-800-872-5925.