California Passes Slate of Mortgage Laws

On October 11, in addition to S.B. 36, California Governor Arnold Schwarzenegger signed into law a collection of bills designed to protect the interests of California homebuyers.

• A.B. 260, among other things, (i) prohibits “steering” borrowers into higher-priced loans that are more risky than lower-interest, fixed-rate loans for which the borrower had actually qualified, (ii) bans negative amortization loans where the loan gets larger the longer the borrower holds the loan, and (iii) establishes strict caps on prepayment penalties. A.B. 260 also imposes a fiduciary duty for all mortgage brokers and banks acting as mortgage brokers, and prohibits lenders and brokers from making false or misleading statements relative to the terms of a subprime loan. 

• A.B. 329 requires reverse mortgage lenders to provide additional, clear information to senior consumers interested in reverse mortgage products. Among its specific provisions are requirements that a lender provide a prospective borrower with (i) a list of at least ten HUD-approved reverse mortgage counseling agencies, and (ii) a written checklist of issues to discuss with the reverse mortgage counselor. 

• A.B. 957 prohibits the seller of certain foreclosed residential real property from conditioning the sale of such property on a buyer’s purchase of title insurance from a particular insurer or title company and/or escrow services from a particular provider. The bill took immediate effect, and remains in effect until January 15, 2015. 

• A.B. 1160 provides that a lender that negotiates a mortgage loan primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean is required to deliver to the borrower a specified form in that same language. The form, to be created by the Department of Corporations and the Department of Financial Institutions, will provide a summary of the terms of the loan contract or agreement. A.B. 1160 becomes effective July 1, 2010, or 90 days after the Department of Corporations and the Department of Financial Institutions create the specified form, whichever is later.

• S.B. 237 requires appraisal management companies to register with the California Office of Real Estate Appraisers, and provides that an appraisal management company is prohibited from improperly influencing or attempting to improperly influence an appraisal. 

• S.B. 239 makes it a felony to commit fraud in connection with a mortgage loan application, where the value of the fraud meets the threshold for grand theft under California law (currently, $400).