Real estate - mortgages - real estate brokers
SB 385, c. 301 of 2007
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SB 385, c. 301: Real estate; mortgages; real estate brokers. Applies federal guidance relating nontraditional mortgage products to state-regulated mortgage lenders and brokers. This bill was supported by the California Bankers Association, Center for Responsible Lending, Fair Lending Alliance, and Greenlining Institute.
The California Bankers Association (CBA) supports the author's attempt to apply the federal guidance on nontraditional mortgage product risks consistently across both federal and state mortgage lenders and brokers. Echoing the perspective of CSBS, CBA believes that "consistent guidance for all market participants will allow the opportunity to gauge the impact on consumer behavior and the mortgage market." The Center for Responsible Lending (CRL) supports this bill, but also hopes that some additional strengthening amendments will be made to address the serious problems that have emerged in the subprime mortgage market. CRL believes that swift application of the guidance to both federal and state mortgage lenders and brokers is "absolutely essential," but just the first step in a series of reforms that are necessary to ensure that California consumers are adequately informed and protected from undue mortgage-related risks. CRL strongly believes that this bill should be amended to address subprime hybrid adjustable rate mortgages, but notes that new regulatory guidance will not be effective in changing the practices of brokers and non-depository mortgage lenders unless the regulatory agencies are strengthened. "Substantial additional resources are needed for staffing and enforcement efforts to make these agencies world-class regulatory agencies capable of adequately overseeing these large and important industries." CRL also urges the Legislature to consider facilitating loan modifications to ensure that borrowers can remain in their homes with long-term affordable mortgage payments, tightening the California Home Equity Sales Contract Act (CC 1695), establishing statutory underwriting standards that include an ability to repay standard based on fully indexed interest rates, mandatory escrow accounts for subprime borrowers, and more thorough income verification standards, meaningful limitations on prepayment penalties, establishment of originator duties applying to both lenders and mortgage brokers, and limitations on yield spread premiums.
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