California Laws Get Tough on Mortgage Finance
California Governor Arnold Schwarzenegger signed seven mortgage finance-related bills into state law Monday. The new laws aim to crack down on fraud, set requirements for loan documents and set restrictions on mortgage and reverse mortgage originators. Senate Bill (SB) 36 regulates the licensing requirements for residential loan originators in compliance with the federal Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act. SB 237 requires appraisal management companies (AMCs) and appraisers register with the Office of Real Estate Appraisers and subjects appraisers to the provisions of the Real Estate Appraisers’ Licensing and Certification Law. SB 239 raises the crime of mortgage fraud from a misdemeanor to a felony and makes it easier for prosecutors to obtain fraudulent loan documents to investigate cases. Assembly Bill (AB) 260 places restrictions on subprime loans and prohibits originators from "steering" borrowers, or encouraging borrowers to buy riskier loan products when they are eligible for affordable products. It also gives state regulatory agencies the authority to suspend or revoke the licenses of real estate lenders and mortgage brokers that violate the state’s lending laws. AB 329 sets guidelines for reverse mortgages originated for elderly borrowers — those over 65 years old — requiring specific disclosures and offering counseling service referrals. Originators are also prohibited from selling other financial products to a reverse mortgage borrower. AB 957 gives the buyers of foreclosed property the right to choose local escrow officers to complete transactions. It prohibits the seller of a residential property from requiring the buyer to use an escrow service company or purchase title insurance chosen by the seller. AB 1160 requires originators to provide borrowers with a mortgage summary document translated in the language the contract was verbally negotiated. “Fraudulent mortgage practices have become more prevalent as a result of the national foreclosure crisis that negatively impacted California’s housing market and economy,” Schwarzenegger said. “This legislation helps crack down on abusive lending practices by giving law enforcement the tools to effectively investigate mortgage fraud crimes and provides Californians with greater consumer protections to promote homeownership in a safe and accountable environment.” Schwarzenegger also signed another bill, SB 291, Monday to give regulatory relief to mortgage insurers and greater discretion to regulators in the state. Write to Austin Kilgore.