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Governor Signs Laws Intended to Curb Fraudulent and Unfair Practices in Mortgage Lending

October 16, 2009

As Riverside County loan modification attorneys, we keep a close eye on how mortgage-industry regulations -- or the lack of them -- affect ordinary people like our clients. That's why we were pleased to see an Oct. 13 article in the Los Angeles Times saying the governor has signed seven different bills intended to protect consumers when they buy, refinance, sell or pay off their homes. The bills came all at once because the legislative session is ending, prompting lawmakers to send multiple bills to the governor for approval. Among the laws, all of which were sponsored by Democrats, are:

  • A bill increasing the penalty for lying on a mortgage application from a misdemeanor to a felony.
  • A law requiring more and clearer information for people interested in reverse mortgages, a product allowing homeowners to draw out their equity.
  • A law allowing buyers of foreclosed homes to choose their own escrow officers.
  • A new registration program for appraisal firms.
  • Licensing requirements for organizations that originate residential loans.
  • A law requiring lenders to provide mortgage loan documents in the same language they used for verbal negotiations.

The centerpiece of the article, however, was AB 260, authored by Democrat Ted Lieu of Torrance. An important provision of the law is intended to end the practice among mortgage brokers of steering borrowers toward expensive subprime loans even though they qualify for prime loans. This is important because many brokers are actually paid a bonus for directing borrowers into more expensive loans than the cheapest they qualify for. AB 260 also bans negative amortization loans, which are loans with such low minimum payments that the loan balance can actually grow; limits prepayment penalties; and authorizes state officials to enforce federal lending laws. Gov. Schwarzenegger rejected a similar bill from Lieu last year, but changed his mind this year despite strong opposition from mortgage industry groups.

Our Placentia loan modification lawyers are particularly pleased to see the provision relating to mortgage brokers, despite the predictable outcry from the mortgage industry. Consumers without any special knowledge of the mortgage industry may believe that mortgage brokers are working in their best interests. But when brokers' compensation is tied to "upselling" more expensive loans, they are actually encouraged to work against the borrowers' interests -- which would be a conflict in any field. Worse, the upselling encourages brokers to create more subprime and exotic loans, the same loans that are widely believed responsible for the housing crash, particularly in Southern California. We are also very pleased to see the law requiring that mortgage documents' language match the language of the mortgage negotiations, an overdue measure that's nothing but common sense in a state as diverse as California.

Howard Law LLP represents homeowners throughout California who need help securing meaningful, sustainable changes to their mortgage loans. Our Santa Clarita loan modification attorneys have done just that for many California homeowners, through both negotiations and, when necessary, legal action. We believe our status as attorneys has helped us get results even when clients working on their own have not. When attorneys call, banks listen -- because they know what we can and will sue if we find any impropriety or unfair dealing in the loan's history. Whenever possible, we want to leave our clients with lowered monthly payments or other means to hold on to their homes for the long term.

Howard Law offers free, confidential case evaluations to all potential clients. To set one up, please contact us through our Web site or call us toll-free at 1-800-872-5925.