California tightens rules for mortgage lenders
Associated Press Writer
SACRAMENTO (AP) ” Mortgage companies will have to do a better job warning prospective California home buyers about the kind of risky loans that have led to tens of thousands of defaults and foreclosures, under a bill signed Friday by Gov. Arnold Schwarzenegger.
The law applies federal lending guidelines to more than 4,800 state-licensed financial institutions, mortgage brokers and real estate agents, including lenders such as San Francisco-based Bank of the West, Calabasas-based Countrywide Financial Corp. and Orange-based Ameriquest Mortgage Co.
Many homeowners signed up for adjustable-rate mortgages and other loan packages that had low initial monthly payments ” or teaser rates ” that later jumped to unaffordable levels. With the housing market slump, many are unable to sell their homes.
Federal guidelines require lenders to clearly disclose the risks and evaluate borrowers’ ability to pay based on the long-term cost of the mortgage, not just the introductory rate.
Those rules apply only to federally chartered and insured lenders, but in California state-regulated lenders provide the majority of subprime mortgages.
“California is facing levels of default and foreclosure not seen since the early 1990s, and experts expect the situation to get worse before it improves,” said the bill’s author, Senate banking committee chairman Mike Machado, D-Linden.
About half of new home loans in California last year varied from the traditional 30-year, fixed-rate mortgage, compared to about a third of new home loans nationwide.
The new law will not help those currently having trouble with mortgages they can’t pay, but it will help prevent similar problems in the future, Machado said in a statement.
Lenders sent nearly 54,000 notices of default this spring to California home owners, the highest level in more than a decade, according to the most recent figures from DataQuick Information Systems. The La Jolla-based company predicted about half will lose their homes.
The state departments of Corporations, Real Estate and Financial Institutions already were adopting the federal guidelines, regulations that will take effect even before Machado’s bill is enacted on Jan. 1.
However, the new law will be helpful because it will let the departments quickly adopt emergency regulations in the future, said Mark Leyes, a spokesman for the Department of Corporations.
The law was supported by representatives of bankers, mortgage brokers and real estate agents.
Schwarzenegger also signed a second Machado bill that prohibits real estate agents from pressuring appraisers to inflate property values. That law takes effect immediately.
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