ASSEMBLYMEMBER TED LIEU
53RD ASSEMBLY DISTRICT
For Immediate Release: January 23, 2008
Contact: David Ford
Phone: (916) 319-2053

Lieu, Assembly Democrats Introduce Comprehensive Subprime Lending Reform Legislation

Sacramento, CA – Assemblymember Ted Lieu, Chair of the Assembly Committee on Banking and Finance, today introduced the most comprehensive and far-reaching legislation in the country to reform the mortgage industry.  AB 1830, which is titled “The Subprime Lending Reform Act of 2008,” was co-authored by 36 of Assemblymember Lieu’s Colleagues in the Assembly Democratic Caucus.  Assembly Speaker Fabian Núñez is a Principal Co-Author of the bill.

“The Wild West excesses of the mortgage frenzy the last few years have resulted in shattered dreams and severely damaged the state and national economy. With this piece of legislation, we’re starting the process of cleaning up this mess,” Lieu said.  “While we can’t change mortgage contracts that are already signed, we’re going to make sure we never go down this path again.”

AB 1830 will make sweeping changes to the mortgage industry, all of which shared some part in causing the current mortgage meltdown.  A few of the major provisions are:

• Banning kickbacks paid to mortgage brokers to steer customers into pricier loans than they qualify for (known as “yield spread premiums”).
  
• Requiring lenders to determine if the borrower has the ability to pay over the life of the loan, not just the initial “teaser” rate.
  
• Banning loans where the borrower pays less than the accrued interest, leading to an increase in the principle (“negative amoritization” or “neg-am” loans).
  
• Prohibiting prepayment penalties, which have stopped many borrowers from refinancing risky loans.
• Requiring pre-loan financial literacy counseling for certain high-cost loans, and requiring disclosure that recommends counseling for subprime loans

AB 1830 is the centerpiece of a far-ranging effort by the Assembly Democrats to address the mortgage crisis that has led to hundreds of thousands of foreclosures, tightened credit markets internationally, and contributed heavily to the State Budget deficit.

It will be supported by a wide range of consumer groups, including The Greenlining Institute, The California Reinvestment Coalition, and The Center for Responsible Lending. 

Robert Gnaizda, General Counsel for the Greenlining Institute, offered his perspective on the bill: “Our federal regulators have failed to act in a responsible fashion.  The California sub-prime legislative proposals are likely to stimulate national leadership initiatives and are a key to ensuring responsible sub-prime lending that protects innocent borrowers.”

Kevin Stein, Associate Director for the California Reinvestment Coalition added: “AB 1830 addresses many of the abusive lending practices that have victimized California homeowners over the last few years and have led to record foreclosure numbers. This is a principled piece of legislation that will bring needed reforms to the mortgage industry. It will create responsible subprime lending in California that will allow people to buy homes without being preyed on by unscrupulous lenders, and it can help prevent a future crisis.”

Under the rules of the California Legislature, AB 1830 must be in print for 30 days before it can be heard in a committee.  At that point, it is expected to be heard in the Assembly Committee on Banking and Finance, and may be referred to other committees.