HAYWARD – Assemblymember Mary Hayashi (D-Hayward) today announced that she has co-authored AB 1830, the Subprime Lending Reform Act of 2008, in response to the growing mortgage crisis affecting families across California.  The bill will address several lending practices related to subprime mortgage loan products that have placed thousands of homeowners at risk for foreclosure and serious financial trouble.

“The current mortgage crisis is threatening home ownership for many Californians, which remains one of the most valued and cherished aspects of the American Dream,” stated Assemblymember Hayashi. “We have to take steps to stabilize the market, and ensure that mortgage lending is carried out with greater foresight and better standards.  The key to this is consumer protection – ending questionable lender practices and helping borrowers to fully understand the loan products being presented to them.”

According to Data Quick Information Systems, the fourth quarter of 2007 set an all-time record in California for the number of homes in various stages of foreclosure.  More than 31,500 homes throughout the state were reported to be in foreclosure, twice the number of foreclosures since the last major real estate downturn in 1996.  The crisis resulted from several years of loose lending standards and the promotion of subprime mortgage products.  While these loans offered first-time homeowners appealing incentives, they also came with the risk of future higher interest rates and severe penalties.  Many lenders and brokers received incentives for placing a person in a subprime loan when he or she would have qualified for a prime loan, or they received commissions on the number of loans sold no matter if borrowers defaulted on the loan a year or two later.  When home prices began to fall in 2006, homebuyers were unable to refinance their high-interest loans since they often owed more than what the home was currently worth.  Many also faced large prepayment penalties for refinancing before the end of the initial term.

AB 1830 would place new regulations on subprime loans by eliminating the abovementioned incentives to loan originators, as well as prohibit prepayment penalties on subprime loans and high cost loans.  The bill would require that borrowers prove their ability to repay the loan at the highest monthly rate including taxes and insurance, and requires pre-loan counseling for high-cost loans.  AB 1830 will heard on April 7th in the Assembly Banking and Finance Committee. 

Homeowners who are facing foreclosure and need assistance may seek more information on Assemblymember Hayashi’s website at www.assembly.ca.gov/hayashi or call her district office at (510) 583-8818.