From latimes.com:
In a flurry of end-of-session bill signings, Gov. Arnold Schwarzenegger approved seven new laws that provide a range of consumer protections to home-mortgage holders and may allow some to hold on to their houses.
Late Sunday night, the governor signed AB 260 by Assemblyman Ted Lieu (D-Torrance). The measure, which takes effect Jan. 1, tightens restrictions on mortgage brokers so they cannot steer borrowers to riskier, higher-interest loans when they qualify for less-expensive ones.
The new law also bans so-called negative-amortization loans, which offer the option of monthly payments so low that the loan amounts can actually grow over time.
The law also limits prepayment penalties to no more than 2% of the loan balance and allows state regulators to enforce federal lending laws.
The governor vetoed similar legislation last year at the urging of some groups in the mortgage and real estate industries. The California Assn. of Mortgage Brokers, the California Mortgage Assn. and the California Assn. of Realtors unsuccessfully opposed this year’s version of the bill.
Lieu, the bill’s author, successfully argued that his proposal was needed more than ever to help California homeowners avoid foreclosure. Lieu noted that, according to RealtyTrac, a real estate data service, 92,326 homeowners were hit with foreclosure notices during August.
“Look out Wall Street, California is no longer the Wild West,” Lieu said in a statement Monday. “Although it took two years, I am pleased to have been able to overcome the powerful interests blocking reform so that future generations won’t ever experience this type of crisis.”
Other mortgage-related bills signed by the governor:
* SB 36, by Sen. Ron Calderon (D-Montebello), sets 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 give more and clearer information to those interested in reverse mortgages, which let seniors borrow against their homes’ equity.
* SB 237, by Calderon, creates a registration program for appraisal management firms.
* AB 957, by Assemblywoman Cathleen Galgiani (D-Stockton), allows buyers of foreclosed homes to choose local escrow officers, rather than being forced to use the escrow company chosen by the seller.
* AB 1160, by Assemblyman Paul Fong (D-Cupertino), requires that mortgage loan documents be written in the same language the verbal negotiations were conducted in.
Quote of the Day:
“I’ve been through a lot worse than getting married.”
Lamar Odom
Are you saying Lamar’s marriage looks like an Option-ARM?
Baby steps…
I personally hate all forms of government regulation. But, Californian’s have proven that they’re just to stupid to be trusted to their own means. It’s unfortunate…
The next thing they need to get rid of is Stated Income loans. Although the market is probably doing that already. So it doesn’t really matter.
AB 1160, by Assemblyman Paul Fong (D-Cupertino), requires that mortgage loan documents be written in the same language the verbal negotiations were conducted in.
Why stop at loan documents?
Oops I assumed all negotiations are in English. Press #2 if you want to continue in English.
The next thing they need to get rid of is Stated Income loans. Although the market is probably doing that already. So it doesn’t really matter.
I swear I remember the feds requiring income verification in one of those housing bills they passed.
Why not make this passed legislation retroactve?
Build a new prison for all the Mozilo wanna bees…
Now, some new felony legislation aimed directly at the so-called Realtor cartel…
As we have so often discussed at CR – Stated Income loans mean that either the borrow is lying to the lender about his/her income or they are lying to the IRS about his/her income.
Art Eclectic-Exactly. As far as I can tell, stated income loans were always illegal. They were always defrauding the lender by the broker and buyer. Now, sometimes the lender, or at least some employees of the lender, was in on it on some level, but it was still fraud. In fact, I don’t see what SB 239 does-I thought that was already a felony.
Anybody know if the state is able to require minimum down payments (override FHA 3%?)
“The measure, which takes effect Jan. 1, tightens restrictions on mortgage brokers so they cannot steer borrowers to riskier, higher-interest loans when they qualify for less-expensive ones.”
Stupid. What’s next, the guy at the McDonalds counter can’t “steer” you to a high calorie burger when there is a less calorie alternative? Why not educate people and let them make their own decisions, but that would be too easy. Instead, lets have 50 million rules and regulations trying to make decisions for people.
Here’s my proposal, make people take a mortgage test to demonstrate they know the basics of how a mortgage works, before they sign on the dotted line. Or why not teach some of this information at High School, sure beats reading Hamlet all day, but again, that would be too easy.
bubblenerd, statistics show that the average American adult reads and comprehends at the 9th grade level.
“Stupid. What’s next…”
Suppose a person comes into MickyD’s and wants a hamburger. The clerk offers them a free one today if they’ll pay on Wed, and if not by Wed than they can still hold out until Friday at which time the burger carries a hefty fee.
Not a problem when people can afford the burger today. They’ll pass on the deal and just eat. Problem when people can’t afford the burger. They may even buy two burgers plus a milkshake.
While I don’t like ‘interfering’ government regs, I can understand the need for many of these.
In the case of ‘steering borrowers to riskier, higher-interest loans’, it was passed because many mortgage brokers would not even tell people that a better loan existed (because of the kickbacks that mortgage brokers would get for the riskier loans). It would be like the healthier meal would not even be listed at McDonalds even though it would be available if you knew the ‘magic password’.
Or why not teach some of this information at High School, sure beats reading Hamlet all day, but again, that would be too easy.
I would definitely agree to this, and have repeatedly stated my opinion on the lack of financial education from graduates of high school. Unfortunately, I suspect that many teachers would also fail here too.
WAAIIIIIIT.
Did you say that Option ARMS are banned in California?
Good thing the horses are safely in the barn. Crisis narrowly averted!
Chuck
It is amazing how they pass this legislation after the horse is out of the barn. My husband worked for 36 years for United Airlines. They underfunded his pension plan by 10 billion. After they went bankrupt and we lost most of it, Congress passed a law forbidding underfunding of pensions. Boy…. I feel good about that. Why can’t we ever see what is coming down the road. The average person sees it but our dopey legislators are too busy having lobster in the Hamptons and getting their “Friends of Mozillo” deals to pay attention to what is happening in the “real world”
“it was passed because many mortgage brokers would not even tell people that a better loan existed ”
So? When I go to a car dealership, they are going to try to sell me the most expensive car on the lot. I can ask if they have anything cheaper, if not, I’ll go look somewhere else. It’s the same when getting a credit card, a computer, a bagel, and practically everything else.
Govt way to late to the party as usual.More regulation for the poor people who are too ignorant to read what they sign.
Think education is expensive, try ignorance!!!!!!!
“I would definitely agree to this, and have repeatedly stated my opinion on the lack of financial education from graduates of high school.”
Yeah but in truth, CEO’s and Senators and such had and still have no idea what was really going on.
The bottom line, no matter how complicated they make it is: You can only afford today what you can afford. The reality of just how poor people are is now sinking in, despite some damn good efforts to hide it..
“Anybody know if the state is able to require minimum down payments (override FHA 3%?)”
If it can’t do so officially, it can do an end run, and levy a tax on low down-payment loans. Of course, there’s no political will for any of that, so it’s academic.
Don’t expect your representatives to protect you. It’s not in their interests.
Only the vast majority of stated income are lying to the lender or lying to the IRS. A small fraction of them are contractors, celebrities, or entrepreneurs who make large but unstable income. This includes people who won the lottery or got a long-term job contract and can document future income but not past income.
In the same way, ARMs were designed for celebrities and multi-millionaires who had the net worth to buy but not the liquidity. But the vast majority of people who used them were not the target market either.
Just FYI.
I’d agree with that, sdbri, and add that at the peak Countrywide had their own guidelines.
As long as you had a 720 FICO and 10% down payment, they’d give you an 80/10/10 to $1,000,000 with no income verification.
Then they’d bundle them up and sell ’em direct to Wall Street, circumventing Fannie/Freddie.
That’s why there will never be any pursuit of borrowers “lying” to defraud a federal institution – it was private enterprise. If CFC could find chumps on Wall Street that would buy the junk paper without income documentation, that’s their problem.
sdbri, you can’t document future income. It isn’t income until you actually receive it, until then it’s only a promissory note. Celebrities and sports stars can’t document future income – they are only as good as their last product/playoff performance. Past performance is no prediction of future performance when it comes to entertainment.
Slightly OT, but should we go to a consumption tax and rid ourselves of the IRS, how will self-employed get a loan?
BTW, did you hear, Im going to recieve the Nobel Peace Prize next year.
Art, that’s the whole point. To a lender on a home loan, it doesn’t count.
However, you can document it for other financial purposes. For example, for a business loan. A bank may certainly verify a contract and issue you a business lone based on it. Happens to new businesses all the time.
Lending standards for home loans don’t translate directly into most standards for other applications.
Jim,
The same way the rest of corporate global Earth does it. Audited financial statements.
Just because you don’t pay income taxes doesn’t mean you don’t need to keep track of your assets and income.
Chuck
Agreed but small business owners aren’t crazy about audited financial statements.
I have a better idea – let’s go back to how lenders like First Franklin used to do it:
24 months of bank statements
That’s a real test, and they should look at the outgo as much as (or more) than income.
Today’s mortgage guidelines only consider what’s on your credit report for outgo, and instead, if all cash and credit expenses were examined, you’d have the complete picture.
If you have a good credit score and history of paying your bills who cares where the money comes from, right?
Jim,
I have an accounting degree and worked in accounting for a long time, so I am somewhat biased. However, even Robert Kiyosaki believes in keeping proper accounting records.
I guess my basic belief is that if you don’t keep proper accounting records and can’t bother to have someone actually look them over, you probably should not be loaned money anyway.
Like I said, I’m biased, so others can feel free to disagree.
chuck
30 comments. Half of them laughs at how the gub’t is too late with regulations to do anything about the crisis, while the other half complains at more regulations, saying that it is useless anyways.
If CFC could find chumps on Wall Street that would buy the junk paper without income documentation, that’s their problem.
That’s why the bailouts are not a good idea. They remove all risks for the buyers of these junk paper, cuz they are “too big to fail”. Either there should be NO bailouts for anyone (leading to financial system collapse), or there should be a limit on how big financial institutions can be (so that no one is “too big to fail”).
How about this–Large Down Payment (40% plus)High Crdit Score (+750)= NO DOCS!!!
AB 1160 – this is my personal area of annoyance. I want the paperwork to be in the same language as negotiations.. so no wherefores, no party of the 3rd part or other such crap. I want it written in simple english.
and even though I’m pretty good at maths, I have no clue when it comes to figuring out which mortgage is better. I used to think the one with the smallest APR and least points but apparently that’s not so. Apparently it all depends on how and when you intend to repay it.
I’m happy to report this though:
http://finance.yahoo.com/news/Virginia-man-gets-20-years-apf-3206137397.html?x=0&.v=1
A Newport News man has been sentenced to 20 years
in prison for running an elaborate mortgage fraud scheme. He only has to repay 900K though.
Tired of CA and have cash to buy??!!
http://www.realtor.com/realestateandhomes-detail/4034-Trumbull_Flint_MI_48504_1110643312
I am self-employed and had no problem getting a loan with full doc.
Small business owners who don’t want to pony up financial statements do so because they are doing creative accounting to keep their taxable income as low as possible. You can’t have your cake and eat it too. If you want to write off everything and end up looking like you make peanuts to evade taxes then you have to accept that your documented income is only going to qualify you to borrow just so much.
I’d be ok with the sentiment that if CFC wrote funky loans and got someone to buy them, what the hey. However, that comes full circle. All the banks and buyers of those loans are now being backstopped by the US taxpayer. Not only are all of us on the hook for CFC’s shenanigans, when those homeowners walk away/lose the house to foreclosure it starts a chain reaction and ends up lowering the comps and prices. Sales prices determine Realtor income. Encouraging irresponsible behavior may put money in your wallet today, but it will be taking money out of your wallet later. This is the exact same short-term thinking that has gotten us in this mess in the first place.
I don’t think you are directing those comments to me, but for the record I’ve full-doc’d every personal mortgage too.
“it was passed because many mortgage brokers would not even tell people that a better loan existed ”
So? When I go to a car dealership, they are going to try to sell me the most expensive car on the lot. I can ask if they have anything cheaper, if not, I’ll go look somewhere else. It’s the same when getting a credit card, a computer, a bagel, and practically everything else.
Ignore previous post – its a repeat of someone else’s.. damn machine decided to post as I was writing.
“it was passed because many mortgage brokers would not even tell people that a better loan existed ”
So? When I go to a car dealership, they are going to try to sell me the most expensive car on the lot. I can ask if they have anything cheaper, if not, I’ll go look somewhere else. It’s the same when getting a credit card, a computer, a bagel, and practically everything else.
No it means that the cheaper cars would not even be shown on the lot, nor would any dealer admit the existed… unless you know the magic password. Kind of like how the Police optioned cars are done.. you can get them if you know the right order number…
I’m happy to report that the IRS, State and Federal Attorneys General and FBI Task Forces are working overtime. They are making arrests, conducting grand juries, obtaining indictments, and prison sentences are being handed down as we speak to liar buyers, mortgage fraudsters, shady flippers, developers, appraisers, brokers, escrow officers, title attorneys, real estate agents and so on and so forth. The magnitude of the bubble crime spree escapes the imagination – and Wall Street bought it.
JtR,
They’re already talking about a consumption tax (VAT), but it’s not to replace other tax income. There is such a deficit, that it will be used to SUPPLEMENT the government’s income. The problem with a VAT is that it will hurt all the small businesses that rely on cheap (illegal) labor to survive.
There are a number of imbalances that seem to be getting farther and farther out of wack… those that pay taxes vs. those that don’t, how much the government spends vs. how much it collects…
The egocentric Taxinator tweeted on Twitter about his bill signing.
I replied to him.
We need to start with ninth graders when it comes teaching basic financial literacy in school. This is more then mortgage problem when it comes to educating young people on finances and how to survive in the real world.
When it comes right down to it we need to start with checking accounts, savings accounts, credit cards, personal loans, car loans, mortgage loans and retirement savings just to name a few. These items are the basic building blocks of financial literacy that need to be taught in high school in my opinion.
I would be willing to bet a lot of people who are having trouble today paying their mortgage do not know how to manage their credit cards or have way too many credit cards to begin with.
We need to go back to the basics to fix this problem otherwise this will happen again without fail.
Do we really need to take Algebra in high school???
“There are a number of imbalances that seem to be getting farther and farther out of wack…”
And that is why people are writing left and right about how bad the California state could become. Demise, failed, dysfunctional, nightmare- these are the words they use. Perhaps they’re wrong but my first hand observations side with the writers. Living here seems like working for a company going bankrupt. The lights are on today, but nobody knows if they’ll be on tommorow. And many have simply stuck their head in the sand to survive and not have to face the music..
Nathan–AMEN–Such a good point regarding early education of financial responsibility. I remember a “Money Management” course I took in 10th grade–those essintials still stick with me today. My wife and I were discussing how amazing it is how some people can’t even balance their checkbooks (or can and don’t bother to).
“No it means that the cheaper cars would not even be shown on the lot, nor would any dealer admit the existed… ”
Can someone point me to a news story or an article about this. If it is true, that every mortgage broker was in on it, then that is collusion, and we already have laws for it, we don’t need new ones.
http://en.wikipedia.org/wiki/Collusion
That’s why the bailouts are not a good idea. They remove all risks for the buyers of these junk paper, cuz they are “too big to fail”. Either there should be NO bailouts for anyone (leading to financial system collapse), or there should be a limit on how big financial institutions can be (so that no one is “too big to fail”).
WB | October 13th, 2009 at 1:57 pm
I was in favor of the bail outs, although I didn’t think they were a good idea. They were merely the least bad idea. The choices were bail out the stupid banks, or the second Great Depression (due to all economic activity grinding to a halt due to lack of available credit). Both choices sucked; bailing out the banks just sucked less.
“Do we really need to take Algebra in high school???”
Of course. And learning geometry, memorizing 17th century history, reading Hamlet, etc. How are you supposed to get a job without knowing how to find the angles of a parallelogram, the facts of the Ming Dynasty, and knowing that Hamlet married his mother.
Besides, if we didn’t have to learn all these, what are history teachers supposed to do? They can’t get a real job with their history expertise, are they supposed to go back to school? We all have to make sacrifices for the good of history teachers everywhere.
I was in favor of the bail outs, although I didn’t think they were a good idea. They were merely the least bad idea. The choices were bail out the stupid banks, or the second Great Depression (due to all economic activity grinding to a halt due to lack of available credit). Both choices sucked; bailing out the banks just sucked less.
Geotpf | October 14th, 2009 at 8:31 am
——————–
But there is no evidence to show that bailing out the banks is going to prevent a depression in the long run. As a matter of fact, many of us would argue that deferring the pain will result in an even greater depression down the road because the market distortions will be allowed to grow even bigger, and greater risks will continue to be taken because of the now-explicit backing of the U.S. govt (that’s us, the taxpayers).
I have always been in favor of a stimulus package, but only if it’s directed at JOBS, not houses/banks. Obama was on the right track when he spoke about the need for infrastructure maintenance/repair/upgrades, and technological innovations in energy and healthcare technology. Unfortunately, far more has been/will be spent on the financial industry, instead of things that would actually improve the lives of Americans and get us back on track — minimizing the importance of the REIC industries, and maximizing the importance of technology, innovation and production of useful goods and services.
Of course. And learning geometry, memorizing 17th century history, reading Hamlet, etc. How are you supposed to get a job without knowing how to find the angles of a parallelogram, the facts of the Ming Dynasty, and knowing that Hamlet married his mother.
Of all the above, I have only used geometry and finding angles on a parallelogram in my work… as for the others.. I don’t plan on going on any game shows..
BTW, Hamlet didn’t marry his mother, but Oedipus did. I also had Calculus in high school.
Ah, you are correct Ucodegen, that’s what I get for not reading the book, I guess I’ve found one reason to read Hamlet after all, even if it’s to use it to dispute it’s usefulness. I have yet to find a use for my parallelogram knowledge, or my 3 semesters of Calculus knowledge.
46: just because we have laws doesn’t mean they get enforced – or that they don’t get enforced selectively.
Just look at what speed people do on the 5 outside of rush hour
Jim, would you please stop these folks from bragging about their level of cultural ignorance? It’s making your blog seem like an alternative high school for morons.
^ 🙂
“Ah, you are correct Ucodegen, that’s what I get for not reading the book, I guess I’ve found one reason to read Hamlet after all, even if it’s to use it to dispute it’s usefulness. I have yet to find a use for my parallelogram knowledge, or my 3 semesters of Calculus knowledge”
Then you are likely underemployed. An understanding of the concept of calculus is critical in countless ways.