The Associated Press
Calif. Assembly approves limits on subprime loans

The Associated Press

Article Launched: 05/29/2008 01:35:22 PM PDT


SACRAMENTO—The California Assembly has approved legislation that attempts to head off more housing foreclosures by putting some restrictions on the use of subprime loans.

The bill by Assemblyman Ted Lieu, a Democrat from Torrance, would prohibit lenders from offering subprime loans unless they had a reasonable belief the borrower could afford it.

Borrowers would have to show evidence that they could pay the mortgage, property taxes and insurance associated with owning the property.

The bill also would prohibit loan officers from receiving commissions for persuading borrowers to take out loans with higher interest rates than they can afford. Violations could lead to fines of up to $10,000 and loss of lenders' licenses.

Subprime loans are generally loans that are issued with higher-than-prime interest rates to borrowers who cannot qualify for traditional mortgages.

During California's housing boom, thousands of borrowers took out adjustable-rate or interest-only loans to get into homes they otherwise could not afford. When those loans reset to higher rates, they couldn't keep up with the monthly payments.

A 48-26 vote sent the measure to the Senate.
Capitol Office: State Capitol, P.O. Box 942849, Sacramento, CA 94249-0053 -- (916) 319-2053 -- Fax: (916) 319-2153