Schwarzenegger approves mortgage laws

If you've got a mortgage, there are several new laws designed to protect you in one way or another.

In a flurry of end-of-session bill signings, Gov. Arnold Schwarzenegger approved new laws that, among other things, tighten restrictions on mortgage brokers so they can't "steer" borrowers to riskier, higher-interest loans when the borrowers could afford and qualify for more economical ones.

That law, AB 260 by Assemblyman Ted Lieu (D-Torrance) also bans negative-amortization loans in which the principal keeps rising even though monthly payments are made. The measure caps prepayment penalties to 2% of the principal balance and allows state regulators to enforce federal lending laws.

Other mortgage-related bills signed by the governor include:

-- SB 36,  by Sen. Ron Calderon (D-Montebello), sets standardized licensing requirements for all residential loan originators.

-- SB 239, by Sen. Fran Pavley (D-Agoura Hills), makes it a felony to commit fraud on a mortgage loan application.

-- AB 329, by Assemblyman Mike Feuer (D-Los Angeles), requires lenders to provide more, clear information to senior consumers interested in reverse mortgages.

-- SB 237, by Calderon, creates a registration program for appraisal management companies.

-- AB 957, by Assemblywoman Cathleen Galgiani (D-Stockton), allows buyers of foreclosed homes to choose local escrow officers.

-- AB 1160, by Assemblyman Paul Fong (D-Cupertino), requires that mortgage loan documents be translated into the language the verbal negotiations were conducted in.

-- Marc Lifsher

Southland mortgage brokers arrested

A trio accused of stealing $1 million are in the news today. From the story at latimes.com:

Three Southern California mortgage brokers have been arrested on suspicion of stealing nearly $1 million from borrowers seeking to adjust their home loans.

Michael McConville, 31, and co-workers Garrett Holdridge, 23, and Alan Ruiz, 28, are scheduled to be arraigned Monday in Los Angeles County Superior Court on charges of bilking more than 70 homeowners, said Scott Gerber, a spokesman for the California attorney general's office.

The three were arrested Thursday after a complaint listing 44 criminal charges was filed by the attorney general's office.

Normally, that office files civil complaints, but the investigation in this case led to a criminal complaint, Gerber said.

"This is essentially grand theft," he said. "We looked at the evidence and that's what it showed, and that warranted criminal charges."

Interestingly, the story also mentions those official-looking property tax reassessment mailings, which I know I have received on several occasions.

--Lauren Beale

Thoughts? Comments?

 

Irvine lender agrees to fines for pre-screened offers

A California mortgage lender agreed Tuesday to pay $20,000 in civil fines for sending pre-screened credit offers to homeowners without telling them that they could opt out of receiving similar offers in the future.

Metropolitan Home Mortgage Inc., which was sending out the credit offers under the name Wholesale Home Lenders, settled with the Federal Trade Commission on charges that it violated federal law.

The Irvine-based company also agreed to share its record-keeping and reporting on its pre-screened credit offers with the FTC so the agency can monitor the company's compliance with federal law, the commission said in a statement.

Metropolitan Home Mortgage didn't respond to requests for comment.

Federal law permits lenders or insurers to make pre-screened credit or insurance offers only if they clearly state that the person's credit report was used to make the offer and that they can opt out of getting such offers, the commission said.

-- Nathan Olivarez-Giles

Predatory lending measure clears Assembly

California Assemblyman Ted Lieu, the Torrance Democrat who is running for attorney general, has moved an anti-predatory home lending law through the Assembly -- for a second time.

The measure now heads for the state Senate. Lieu, the former head of the Assembly Banking Committee, wrote a similar measure last year that barely made it through the more moderate Senate.

But when the Legislature sent it to Gov. Arnold Schwarzenegger, he refused to sign it, saying it was well intentioned but would create an uneven playing field because it would not apply to federally regulated entities.

Schwarzenegger supported at least one one provision of last year's bill, which imposed a 120-day moratorium on foreclosures in the state, and signed it into law as a separate measure.

Lieu's proposed law seeks to create a stronger fiduciary duty for California mortgage brokers, meaning they would have to do a better job of putting the interests of borrowers first. To encourage this, it would ban payments from lenders to brokers who bring in loans at higher rates that the borrowers qualify for. 

These payments, known as yield spread premiums, are now rarely seen in the wake of the mortgage meltdown. Brokers said the payments enabled them to defray the closing costs of the loans by using them to cover appraisals and the rest of the incredible array of junk fees that always seem to appear at closing time.      

Consumer advocates contended that certain brokers tended to pocket the bonuses and stick borrowers in unaffordable adjustable-rate loans. 

Lieu's bill, AB 260, expressly prohibits steering of clients into inferior loans, bars brokers and lenders from making deceptive statements about subprime mortgages and limits the use of prepayment penalties. It also would ban negative amortization loans -- the what, me-worry? mortgages where you can pay so little that the mortgage balance goes up.

Federal regulators and legislators also have been tightening restrictions on the mortgage industry, and buyers have evaporated for the easy-money loans that fed the big boom earlier this decade. So it's hard to say what immediate effects Lieu's proposals would have should they become law. In a phone call this afternoon, he told me that one difference in his proposed law compared to federal actions would be to allow private parties to hire lawyers and prosecute on behalf of the state, recovering attorney fees if they win. Critics of the plaintiff's bar are sure to love that. 

Lieu also said that banks and their trade groups have so far stayed neutral on his proposals. That is interesting given the brutal battles that banks and the Office of the Comptroller of the Currency -- the Treasury Department agency that regulates national banks -- have fought (and won) in the past to assure that state lending laws can't be enforced against national banks.

His proposals mostly apply to independent mortgage brokers, who are regulated by the state, not the federal government. The brokers work with multiple lenders, theoretically helping borrowers find the loan best suited to their needs. Lieu's measure would give the state AG the power to revoke state licenses for violations and impose a $10,000 fine per violation.

A Schwarzenegger press assistant, Rachel Cameron, said the governor won't discuss a proposed law until it hits his desk. Cameron did volunteer to send me a list of the governor's past efforts to help troubled homeowners. Since this post is already way too long, I will be happy to e-mail the list, along with his previous statement on the flaws in Lieu's law, to anyone who wants to review it. Requests should be sent to scott.reckard@latimes.com 

 -- E. Scott Reckard
                         

Major firms refuse to work with mortgage brokers

 

Remember, mortgage brokers aren't working for you, according to a column in Friday's New York Times, they are working for themselves:  

In recent months, some of the biggest companies in real estate have decided to stop working with brokers. Chase won’t lend to brokers’ clients anymore. The PMI Group, one of the biggest companies in the mortgage insurance business, flat out refuses to underwrite any policies on loans that started with a broker.

Meanwhile, a bill is moving through Congress that would ban a common practice from a few years ago, where brokers earned more money by putting clients in loans that were potentially damaging. The legislators’ ire is tarring even those brokers who never engaged in such shenanigans.

All of this is happening just as borrowers need plenty of guidance. Mortgage rates are low, fueling demand for refinancing. But banks' loan rules seem to change by the day, and many banks don’t have the staff to handle the volume.

Amazing how slow the wheels of progress are. A practice common a few years ago is just now on its way to being banned. It really begs the question, why use mortgage brokers? Here's what they have to say:

“Over the last 12 to 15 years, we’ve held the majority of the market share in residential mortgages,” said Marc Savitt, president of The Mortgage Center, a mortgage broker in Martinsburg, W.Va., and the president of the National Associations of Mortgage Brokers. “That happens because we give our customers good service and good rates. Otherwise, consumers wouldn’t be using us.”

But it’s also possible that consumers simply don’t know they could do better.

Good grief! Comparison shop just like you would for any major purchase. 

--Lauren Beale

Thoughts? Comments?

Photo: The Chase Bank in Lower Manhattan in New York City. Credit: Timothy A. Clary / AFP/Getty Images