California Legislation Update 2008
The Foreclosure Crisis is far from over: 355,682 California families stand to lose their homes to foreclosure in 2008/2009. Nearby foreclosures would negatively impact home prices for 7,505,584 surrounding homes, causing an average home price decline of $14,282. As a result, California communities would lose $107 billion due to this decrease in home values/tax base.
There are many bills pending in the California legislature that would offer assistance to current borrowers, and modify the mortgage loan process for new loans going forward. Priority bills include:
Helping Current Borrowers
Reforming Regulatory System
Helping Current Borrowers
SB 1137 (Perata, Corbett, Machado): Foreclosure Process Reform
Urgency: takes effect immediately; requires 2/3 vote.
- Requires lenders to contact borrow (or engage in due diligence to do so) to schedule a face-to-face or telephone meetings with borrowers to provide restructuring options before sending a notice of default.
- Requires a 60-day notice to be given (in English and Civ. Code 1632 languages) to a tenant of building facing foreclosure before tenant can be removed from a rental housing unit.
- Allows for civil penalties of $1,000 per day to be assessed for a failure to maintain a foreclosed property.
Passed Cmtes. Senate Floor 4/21.
Current Status of SB 1137 (Former SB 926.)
Center for Responsible Lending's Letter re SB 926
Center for Responsible Lending's Letter re SB 1137
SB 1055 (Machado, Correa): Tax Relief
- Conforms with recent federal tax changes to provide state income tax relief to borrowers who have had mortgage debt forgiven by their lender.
- Amended to cap at $1 million (joint) & $500,000 (single) and to apply only to forgiveness before Jan. 1, 2009 (versus 2010).
Passed Sen. Revenue & Taxation as amended (8-0) 2/21/08.
Amended & Re-ref'd to Approps. 2/25/08.
Current status of SB 1055.
SB 1065 (Correa): Local Refinancing Programs
Urgency: takes effect immediately; requires 2/3 vote.
- Seeks to provide Independent Cities Lease Finance Authority (ICLFA) members an affordable, fixed-rate refinancing alternative to owner-occupied households whose current loan is inappropriate for their financial circumstances.
Passed Senate Banking.
Current status of SB 1065.
AB 69 (Lieu): Data Collection
- Requires mortgage lenders & servicers to provide monthly reports to their respective regulatory agency, information regarding loan loss mitigation efforts on subprime and nontraditional loans.
- Lender-specific reports will be posted on the Internet for public consumption.
Passed on Assembly Floor 1/29/08 49-22; to Senate Banking.
Current status of AB 69.
Center for Responsible Lending's Letter to Senate re AB 69.
AB 529 (Torrico): Rate Change Notice
- Requires lenders to provide a notice to borrowers regarding an interest rate reset on or w/in 5 days prior to 120 days, 60 days & 30 days prior to an interest rate adjustment, which includes:
- current interest rate and estimated change based on date of notification;
- estimated new payment & whether it includes insurance and property taxes;
- duration of new payment before next adjustment;
- frequency of future interest rate adjustments; and
- who to contact for assistance re modifying or refinancing.
Passed on Assembly Floor 1/29/08 45-30; to Senate Banking.
Current status of AB 529.
Center for Responsible Lending's Letter to Assembly re AB 529
AB 180 (Bass): Foreclosure Consultant Regulation
- Allows an owner to cancel a contract within 5 days after signing, and can cancel by mail, e-mail, or facsimile.
- Requires the contact to be in the language used by the consultant to explain or negotiate.
- Prohibits a foreclosure consultant from taking any power of attorney from an owner for any purpose.
- Requires a foreclosure consultant to register with the Department of Justice, to state that s/he has not been convicted of, pled nolo contendere to, or found civilly liable for any fraud-based crime/statute.
- Requires a foreclosure consultant to obtain and maintain a surety bond of $100,000 for each transaction payable to the homeowner in the transaction.
Passed on Assembly Floor 1/29/08 47-27; to Senate Judiciary.
Current status of AB 180.
AB 2187 (Caballero): Foreclosure Process
- Requires notice of default to be sent to housing counseling agency.
- Requires lender or other person foreclosing to mail a homeowner's bill of rights specifying the process and setting forth the rights of the borrower regarding contracts with mortgage foreclosure consultants.
- Require lender or other person who takes possession by foreclosure to notify the city or county by mail, of its plan for managing the property prior to sale, and to reimburse the city or county for any reasonable costs expended to maintain the property.
Passed Asm. Banking; to Asm. Judiciary.
Current status of AB 2187.
AB 2509 (Galgiani, Carter): Mortgage Guarantee Program
- Requires the CalHFA to establish and administer Homeownership Preservation Mortgage Guarantee Program to allow redevelopment agencies, nonprofit community lenders, and small business financial development corps selected by the agency to issue loan guarantees for an amount that is more than 20% of the outstanding principal of the original loan or for a term not exceeding 5 years to lenders to back the issuance to the borrower of a new or refinanced loan in lieu of an original loan.
- $50,000,000 for Homeownership Preservation Mortgage Guarantee Fund.
- CFHA will establish terms of restrictive covenant to be recorded on the property for the term of the loan guarantee.
Passed Asm. Banking; to Asm. Approps.
Current status of AB 2509.
AB 2331 (DeSaulnier): CalHFA
- Revises definition of "persons and families of low or moderate income," for purposes of CalHFA eligibility, to mean those whose income does not exceed 150% percent of area median income, from 120%.
Introduced 2/21/08.
Current status of AB 2331.
AB 1918 (Niello, Garcia, Houston & Villines): Tax Relief
- Modified federal conformity measure that will provide state income tax relief to borrowers who have had mortgage debt forgiven by their lender.
Current status of AB 1918.
Reforming Regulatory System
AB 1830 (Lieu): Subprime Lending Reform Act [Click here for CRL Fact Sheet]
- Requires lenders to consider the borrower's ability to repay the loan over the entire life of the loan for high cost, subprime & nontraditional loans, and assuming fully amortizing payments for subprime & nontraditional loans.
- For high cost loans, rebuttable presumption that mortgage was made without regard to repayment ability if DTI > 45 percent.
- For subprime/nontraditional loans, rebuttable presumption that mortgage was made without regard to repayment ability if DTI > 55 percent.
- Requires escrow accounts for payment of insurance & taxes for high cost, subprime, and nontraditional loans for min of 5 years, unless taxes & insurance are escrowed through another loan.
- Bans stated income loans based solely on borrower statements; requires some document-based verification of ability to pay.
- Bans yield spread premiums/incentives given to brokers to place borrowers in higher interest rate loans for high cost, subprime & nontraditional loans; limits YSP for bona fide no cost loans that are not subprime or nontraditional loans.
- Bans prepayment penalties for high cost and subprime loans, and for other ARM loans, ban prepayment penalties six months prior to rate adjustment.
- Bans steering of borrowers to loan terms that are more costly than those for which they could have qualified for high cost, subprime & nontraditional loans.
- Bans flipping (refinancing without providing a net tangible benefit) for high cost, subprime & nontraditional loans.
- Bans negative amortization loans in which the principal continues to grow despite monthly payments from the borrower for high cost, subprime & nontraditional loans.
- Requires counseling for high cost loans.
- Redefines high cost loans as loans where either: 1) APR > treasury by 8% points for 1st liens or 10% points for subordinate loans; or 2) total points & fees exceed 5% of the total loan amount.
- Adds YSPs to points & fees definition, but does not include PPPs (either max or paid) or financed credit insurance.
- Expands other prohibitions from existing law covering high cost loans to subprime and nontraditional loans.
Passed Asm. Banking & Asm. Judiciary.
Current status of AB 1830.
AB 2359 (Jones): Assignee Liability & Contractual Waivers
- Assignee liability for high cost loans
- Safe harbor protections against unlimited legal claims and damages for entities who purchase loans but implement protective policies to avoid the purchase of high cost loans.
- Notwithstanding safe harbor, individuals may file claims w/in 6 years, or may bring defensive claims at any time; and damages are capped.
- Any waivers of rights (including to trial by jury) must be knowing and consensual
Passed Asm. Banking 4/21.
Current status of AB 2359.
AB 2880 (Wolk, Galgiani): Regulating Mortgage Brokers [Click here for CRL Fact Sheet]
- Provides increased regulations for DRE-regulated independent mortgage brokers, including:
- Codifying that brokers owes a fiduciary duty to the borrower; and imposing other duties on brokers, including, to act in the borrower’s best interest and in the utmost good faith toward the borrower, to not accept any undisclosed compensation, to use reasonable skill, care and diligence, and to disclose all material information.
- Putting in place a variable surety bond requirement of $100,00 - $500,000 depending upon volume, to be set by DRE.
- Banning the payment of broker kickbacks in all loans (with an exception for the payment of limited YSPs in true no cost, traditional prime loans)
Passed Asm. Banking & Asm. Judiciary.
Current status of AB 2880.
AB 2740 (Brownley): Regulating Mortgage Servicers
- Sets limits on allowable fees.
- Requires timely posting of payments.
- Requires proper handling of escrow accounts.
- Requires that servicers respond promptly to borrower disputes or requests for information.
Passed Asm. Banking & Asm. Judiciary; to Approps.
Current status of AB 2740.
AB 512 (Lieber): Translation for Mortgage Lender
- Adds loans from residential mortgage banks to the list of consumer contracts that must be translated into Spanish, Chinese, Tagalog, Vietnamese, or Korean, when the contract is negotiated in that language.
Amended in Senate 9/7/07, held in committee 9/10/07.
Current status AB 512.
SB 1053 (Machado): Broker Oversight
- Requires every real estate broker licensed by DRE who makes, brokers, or services mortgages to notify DRE about those activities on an annual basis.
- Require supervising real estate brokers (those in charge of mortgage brokerage businesses) to submit detailed compliance reviews of their books and records to DRE annually, along with business activity reports detailing the loans their businesses brokered, made, and serviced during the prior year.
Passed BF&I; Re-Referred to Business, Professions & Economic Development.
Current status of SB 1053.
SB 1054 (Machado): Real Estate Law Loophole Closure
- Gives the Department of Real Estate (DRE) the ability to ban individuals who have been found guilty of violating the Real Estate Law from real estate-related employment for up to three years.
- Removes the incentive for a real estate professional to derail a proposed short sale in hopes of getting the listing on the property by prohibiting any real estate professional who gives an opinion of value on a property to a lienholder from acting as the listing agent on that property for a period of one year.
Passed Bus., Prof. & Econ. Dev., & Banking, Fin. & Ins.; To Approps.
Current status of SB 1054.
SB 1604 (Machado): Finance Lenders & Residential Mort. Lenders
- Under finance lenders law, requires that applicants show a minimum tangible net worth of $25,000 for "brokers," $50,000 for "a broker engaged in the business of negotiating or performing acts in connecting with residential mortgage loans," and $250,000 for finance lenders (of residential mortgage loans), and require that licensees maintain the applicable net worth at all times.
- Increases surety bond to $100,000 for finance lenders (or brokers of residential mortgage loans).
- Requires any person seeking employment with a finance lender or broker to complete a specified employment application (on or before the first day of employment), which includes questions re disciplinary history and criminal background, and must be signed under penalty of perjury.
- Require that licensees update information (change or close of office, etc).
Passed Sen. Banking & Judiciary.
Current status of SB 1604.
SB 1375 (Corbett, Migden, Perata): Trustee sale guarantees
- Reduces costs of reinstatement of a mortgage for homeowners facing foreclosure by authorizing charging, as an alternative to the fee for a trustee's sale guarantee, the costs of a title and court records search.
Current status of SB 1375.
AB 1837 (Garcia): Regulating Prepayment Penalties and YSPs
- Bans prepayment penalties in subprime and nontraditional loans.
- Limits prepayment penalties in covered (high cost) loans and mortgage loans other than subprime and nontraditional loans to 24 months & 2% of total prepayment.
- ARMs other than subprime and nontraditional loans cannot have a prepayment penalty that extends beyond the fixed rate period.
- Bans YSPs in subprime and nontraditional loans.
Current status of AB 1837.
AB 2161 (Swanson): Mortgage Complaint Grievance Process
- Requires that California Finance Lenders and Residential Mortgage Lenders establish, by January 1, 2010, a grievance resolution system for handling consumer complaints within 30 calendar days of receipt.
Current status of AB 2161.
AB 2323 (Huff): Escrow agent licensing
- Requires the application process for a license as an escrow agent to also include federal summary criminal history information from the Federal Bureau of Investigation
Passed Asm. Banking & Judiciary; to Approps.
Current status of AB 2323.
