ASSEMBLYMEMBER TED LIEU
53RD ASSEMBLY DISTRICT
For Immediate Release: April 7, 2008
Contact: Ashlie Simpson
Phone: (916) 319-2053

Assembly Committee Passes Comprehensive Subprime Lending Reform Legislation

Sacramento, CA – Today, the Assembly Banking and Finance Committee passed the most comprehensive and far-reaching state legislation in the country, AB 1830 by Assemblymember Ted Lieu (D-Torrance) to reform the mortgage industry. 

“Predatory lending and the unregulated excesses of the mortgage frenzy the last few years have resulted in shattered dreams and severely damaged the state and national economy.  With this bill, we’re saying never again will a crisis of this magnitude happen in California,” 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 amortization” 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.

AB 1830, which is titled “The Subprime Lending Reform Act of 2008,” was co-authored by 36 members of the Assembly, including Assembly Speaker Fabian Núñez and Speaker-elect Karen Bass.  It is supported by a wide range of consumer groups, including The Greenlining Institute, The California Reinvestment Coalition, and The Center for Responsible Lending.