Efforts To Regulate Mortgages Return From The Dead

Lieu says the bill in necessary to rein in the large group of unregulated lenders, namely mortgage brokers, not covered under recently revamped federal regulation. About 60% of subprime lending made in California in recent years came from state-chartered entities, according to the Center for Responsible Lending.

But representatives of the mortgage industry say new legislation threatens to drive lenders and brokers out of the residential mortgage business, drying up credit and making it impossible for many people to get home loans.

“I think it’s worthwhile to ask whether we need to layer more regulations onto residential loans,” said Mike Belote, a lobbyist for the California Mortgage Assn. The mortgage and real estate industries also oppose to the fiduciary duty spelled out in the bill.

“We understand fiduciary duty and we understand getting the borrower the best loan we can,” said Belote, [but] “I think it subjects brokers to more litigation which they don’t need.”

The mortgage and real estate industries have lobbied hard against the bill, as they did against its predecessor. That bill faced a grueling battle in the legislature, during which it was heavily amended to remove some provisions hard-sought by consumer and lending reform groups. Schwarzenegger vetoed the bill, saying it “overreaches and may have unintended consequences.” He also said it would create an unlevel playing field between state and federally-regulated firms.

In his attempt to revive the bill, Lieu agreed to omit provisions knows as private right to action that would have permitted suits against lenders and brokers who violate the measure’s provisions. He took the step in an attempt to appease the industry and avoid a veto.

“I would love to have a private right to action but I need the governor’s signature,” Lieu said.

Some consumer groups, including the Center for Responsible Lending and the California Reinvestment Coalition, say the bill doesn’t go nearly far enough. They are seeking a ban on prepayment penalties and yield-spread premiums and a private right to action.

“We wouldn’t want to see a precedent of outlawing certain practices without a way to enforce those practices,” said Stein.

Jill Replogle has worked as a freelance journalist in the Bay Area and Central America for eight years. She is now a student at the UC Berkeley Graduate School of Journalism. Jill is currently an intern for Protect Consumer Justice.