BILL NUMBER: AB 1830	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  MAY 28, 2008
	AMENDED IN ASSEMBLY  MAY 23, 2008
	AMENDED IN ASSEMBLY  APRIL 1, 2008

INTRODUCED BY   Assembly  Member   Lieu
  Members   Lieu   and Wolk 
   (Principal coauthors: Assembly Members Galgiani, Nunez, and
Ruskin)
   (Coauthors: Assembly Members Arambula, Bass, Beall, Berg,
Brownley, Caballero, Carter, Coto, Davis, De Leon, DeSaulnier,
Dymally, Eng, Feuer, Hancock, Hayashi, Huffman, Jones, Karnette,
Krekorian, Laird, Leno, Levine, Ma, Mendoza, Mullin, Nava, Price,
Salas, Saldana, Solorio, Swanson,  Torrico, 
   and Wolk   and Torrico 
)

                        JANUARY 23, 2008

   An act to amend Sections 4970,  4973,  4974,
4975, 4977, 4978, 4978.6, and 4979 of, to amend the heading of
Division 1.6 (commencing with Section 4970) of, and to add Sections
4973.2 and 4980 to, the Financial Code, relating to loans.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 1830, as amended, Lieu.  High-cost, subprime, and
nontraditional   Covered and subprime  loans.
   Existing law imposes certain limitations and prohibitions on
licensed persons, including real estate brokers, finance lenders,
residential mortgage lenders, and financial institutions, with
respect to consumer loans and covered loans. Existing law defines a
"consumer loan" as a consumer credit transaction secured by
residential real property, subject to certain exceptions, and defines
a "covered loan" as a consumer loan that meets certain other
requirements. Existing law prohibits a covered loan from including a
prepayment penalty after the first 36 months from the date of
consummation of the loan but authorizes a covered loan to include a
prepayment penalty before that time period if specified conditions
are satisfied. Existing law prohibits a covered loan from being made
unless a specified disclosure is provided to the consumer no later
than 3 business days prior to signing of the loan documents.
Violations of these limitations and prohibitions by licensed persons
are deemed to be violations of the person's licensing law and may be
punishable by, among other things, disciplinary action, civil
liability, and the imposition of administrative penalties and civil
penalties up to $25,000, as specified. For certain licensed persons,
violations of these limitations and prohibitions may be punished as
crimes.
   This bill would  redefine a "covered loan" as a "high-cost
loan," would establish "subprime loans" and "nontraditional loans,"
  establish "subprime loans,"  as defined, as new
categories of regulated loans, and would make various conforming
changes to existing law relative to these loans. The bill would
prohibit a  high-cost   subprime  loan from
including prepayment penalties and from including  at
origination a payment schedule with regular periodic payments that,
when aggregated, do not fully amortize the principal balance as of
the maturity date of the loan   a provision for negative
amortization  . The bill would prohibit a person from making a
 high-cost   subprime  loan unless at the
time the loan is consummated the person reasonably believes the
consumer will be able to make the scheduled payments, including taxes
and insurance, and would create a rebuttable presumption regarding
repayment ability in certain circumstances.  The bill would
prohibit a high-cost loan from being originated as a stated income
loan, except as specified.  The bill would  , among
other things,  prohibit a licensed person who originates
 certain high-cost   subprime  loans from
receiving a yield spread premium or other incentive compensation 
, in certain circumstances  and would prohibit a person from
originating a  high-cost   subprime  loan
unless an escrow or impound account is established for a specified
period of time.  The bill would delete the provisions
requiring a disclosure to be provided to a consumer prior to making a
covered loan and would instead prohibit a high-cost loan from being
made unless a consumer receives a certificate of certain counseling.
The bill would establish similar limitations and prohibitions for
subprime and nontraditional loans but would require a specified
disclosure to be provided to a consumer before those loans could be
made.  The bill would authorize a licensing agency to levy
administrative penalties in an amount up to $10,000 against a person
who violates the provisions regulating  high-cost, subprime,
and nontraditional   covered and subprime  loans
and would make a person who makes a willful and knowing violation of
those provisions of law liable to the consumer in the amount of
$25,000 or the consumer's actual damages, whichever is greater. The
bill would authorize the Attorney General, city attorney, or district
attorney to bring an action for specified civil penalties for a
violation of the provisions regulating  high-cost, subprime,
or nontraditional   covered and subprime loans. The
bill would provide that it is a defense against foreclosure on a
property secured by a  high-cost, subprime, or nontraditional
  covered or subprime  loan if the loan is in
violation of the laws regulating those loans. The bill's provisions
would apply to  high-cost, subprime, and nontraditional
  covered and subprime  loans originated on or
after January 1, 2009. Because a violation of the bill's provisions
by certain licensed persons may be punished as crimes, this bill
would impose a state-mandated local program.
   The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
   This bill would provide that no reimbursement is required by this
act for a specified reason.
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  The heading of Division 1.6 (commencing with Section
4970) of the Financial Code is amended to read:

      DIVISION 1.6.  Subprime Lending Reform Act


  SEC. 2.  Section 4970 of the Financial Code is amended to read:
   4970.  For purposes of this division:
   (a) "Annual percentage rate" means the annual percentage rate for
the loan calculated according to the provisions of the federal Truth
in Lending Act and the regulations adopted thereunder by the Federal
Reserve Board.
   (b)  "High-cost   "Covered  loan" means
a consumer loan in which the original principal balance of the loan
does not exceed the most current conforming loan limit for a
single-family first mortgage loan established by the Federal National
Mortgage Association in the case of a mortgage or deed of trust, and
where one of the following conditions is met:
   (1) For a mortgage or deed of trust, the annual percentage rate at
consummation of the transaction will exceed by more than eight
percentage points for first lien loans, or by more than 10 percentage
points for subordinate lien loans, the yield on Treasury securities
having comparable periods of maturity on the 15th day of the month
immediately preceding the month in which the application for the
extension of credit is received by the creditor.
   (2) The total points and fees payable by the consumer at or before
closing for a mortgage or deed of trust will exceed  5
  6  percent of the total loan amount.
   (c) "Subprime loan" or "subprime mortgage" means a consumer loan
in which the annual percentage rate exceeds the greater of either of
the following:
   (1) The difference between the annual percentage rate for the loan
and the yield on Treasury securities having comparable periods of
maturity is either equal to or greater than (A) 3 percentage points
if the loan is secured by a first lien mortgage or deed of trust, or
(B) 5 percentage points if the loan is secured by a subordinate lien
mortgage or deed of trust. Without regard to whether the loan is
subject to or reportable under the provisions of the federal Home
Mortgage Disclosure Act (12 U.S.C. Sec. 2801, et seq.) (HMDA), the
difference between the annual percentage rate and the yield on
Treasury securities having comparable periods of maturity shall be
determined using the same procedures and calculation methods
applicable to loans that are subject to the reporting requirements of
the HMDA.
   (2) The difference between the annual percentage rate for the loan
and the annual yield on conventional mortgages published by the
Board of Governors of the Federal Reserve System, as published in
statistical release H.15 or any publication that may supersede it, is
either equal to or greater than (A) 1.75 percentage points, if the
loan is secured by a first lien mortgage or deed of trust, or (B)
3.75 percentage points, if the loan is secured by a subordinate lien
mortgage or deed of trust. 
   (d) "Nontraditional loan" or "nontraditional mortgage" means a
consumer loan that allows borrowers to defer payment of principal
and, sometimes, interest, as set forth in the "Interagency Guidance
on Nontraditional Mortgage Product Risks" (71 Fed. Reg. 58609 (Oct.
4, 2006)).  
    (e) 
    (d)  (1) "Points and fees" shall include the following:
    (A) All items required to be disclosed as finance charges under
Sections 226.4(a) and 226.4(b) of Title 12 of the Code of Federal
Regulations, including the Official Staff Commentary, as amended from
time to time, except interest.
    (B) All compensation paid directly or indirectly to a mortgage
broker from any source, including, but not limited to, any payment of
a yield spread premium, and including a payment to a mortgage broker
that originates a loan in its own name in a table-funded
transaction.
   (C) All items listed in Section 226.4(c)(7) of Title 12 of the
Code of Federal Regulations, only if the person originating the
high-cost loan receives direct compensation in connection with the
charge.
   (2) "Points and fees" shall not include any of the following:
   (A) Taxes, filing fees, recording fees, and other charges and fees
paid or to be paid to public officials for determining the existence
of or for perfecting, releasing, or satisfying a security interest.
   (B) Bona fide and reasonable fees paid to a person other than the
creditor or an affiliate of the creditor for fees for tax payment
services, flood certification, or pest infestation and flood
determination, appraisal fees, fees for inspections performed prior
to closing, credit report fees, survey fees, attorneys' fees if the
borrower has the right to select the attorney from an approved list
or otherwise, notary fees, escrow charges, title insurance premiums,
and fire and hazard insurance and flood insurance premiums, provided
that the conditions in Section 226.4(d)(2) of Title 12 of the Code of
Federal Regulations are met. 
    (f) 
    (e)  "Consumer loan" means a consumer credit transaction
that is secured by real property located in this state used, or
intended to be used or occupied, as the principal dwelling of the
consumer that is improved by a one-to-four residential unit.
"Consumer loan" does not include a reverse mortgage, an open line of
credit as defined in Part 226 of Title 12 of the Code of Federal
Regulations (Regulation Z), or a consumer credit transaction that is
secured by rental property or second homes. "Consumer loan" does not
include a bridge loan. For purposes of this division, a bridge loan
is any temporary loan, having a maturity of one year or less, for the
purpose of acquisition or construction of a dwelling intended to
become the consumer's principal dwelling. 
    (g) 
    (f)  "Original principal balance" means the total
initial amount the consumer is obligated to repay on the loan.

    (h) 
    (g)  "Licensing agency" shall mean the Department of
Real Estate for licensed real estate brokers, the Department of
Corporations for licensed residential mortgage lenders and licensed
finance lenders and brokers, and the Department of Financial
Institutions for commercial and industrial banks and savings
associations and credit unions organized in this state. 
    (i) 
    (h)  "Licensed person" means a real estate broker
licensed under the Real Estate Law (Part 1 (commencing with Section
10000) of Division 4 of the Business and Professions Code), a finance
lender or broker licensed under the California Finance Lenders Law
(Division 9 (commencing with Section 22000)), a residential mortgage
lender licensed under the California Residential Mortgage Lending Act
(Division 20 (commencing with Section 50000)), a commercial or
industrial bank organized under the Banking Law (Division 1
(commencing with Section 99)), a savings association organized under
the Savings Association Law (Division 2 (commencing with Section
5000)), and a credit union organized under the California Credit
Union Law (Division 5 (commencing with Section 14000)). Nothing in
this division shall be construed to prevent any enforcement by a
governmental entity against any person who originates a loan and who
is exempt or excluded from licensure by all of the licensing
agencies, based on a violation of any provision of this division.
Nothing in this division shall be construed to prevent the Department
of Real Estate from enforcing this division against a licensed
salesperson employed by a licensed real estate broker as if that
salesperson were a licensed person under this division. A licensed
person includes any person engaged in the practice of consumer
lending, as defined in this division, for which a license is required
under any other provision of law, but whose license is invalid,
suspended or revoked, or where no license has been obtained. 

    (j) 
    (i)  "Originate" means to arrange, negotiate, or make a
consumer loan. 
    (k) 
    (j)  "Servicer" has the same meaning provided in Section
6 (i)(2) of the Real Estate Settlement Procedures Act of 1974.

   (l) 
    (k)  "Fully indexed rate" means the index rate
prevailing on a residential mortgage loan at the time the loan is
consummated plus the margin that will apply after the expiration of
any introductory interest rates. 
  SEC. 3.    Section 4973 of the Financial Code is
amended to read:
   4973.  The following are prohibited acts and limitations for
high-cost loans:
   (a) A high-cost loan shall not include a prepayment fee or
penalty.
   (b) (1) A high-cost loan may not provide at origination for a
payment schedule with regular periodic payments that when aggregated
do not fully amortize the principal balance as of the maturity date
of the loan.
   (2) For a payment schedule that is adjusted to account for the
seasonal or irregular income of the consumer, the total installments
in any year shall not exceed the amount of one year's worth of
payments on the loan. This prohibition does not apply to a bridge
loan. For purposes of this paragraph, "bridge loan" means a loan with
a maturity of less than 18 months that only requires payments of
interest until the time when the entire unpaid balance is due and
payable.
   (c) A high-cost loan shall not contain a provision for negative
amortization such that the payment schedule for regular monthly
payments causes the principal balance to increase.
   (d) A high-cost loan shall not include terms under which periodic
payments required under the loan are consolidated and paid in advance
from the loan proceeds.
   (e) A high-cost loan shall not contain a provision that increases
the interest rate as a result of a default. This provision does not
apply to interest rate changes in a variable rate loan otherwise
consistent with the provisions of the loan documents, provided the
change in the interest rate is not triggered by the event of default
or the acceleration for the indebtedness.
   (f) (1) A person who originates high-cost loans shall not make or
arrange a high-cost loan unless at the time the loan is consummated,
the person reasonably believes the consumer, or consumers, when
considered collectively in the case of multiple consumers, will be
able to make the scheduled payments, including taxes and insurance at
the fully indexed rate, to repay the obligation based upon a
consideration of their current and expected income, current
obligations, employment status, and other financial resources, other
than the consumer's equity in the dwelling that secures repayment of
the loan. In the case of a high-cost loan that is structured to
increase to a specific designated rate, stated as a number or
formula, at a specific predetermined date not exceeding 37 months
from the date of application, this evaluation shall be based upon the
fully indexed rate of the loan calculated at the consummation of the
transaction.
   There is a rebuttable presumption that a high-cost mortgage was
made without regard to repayment ability if, at the time the loan is
consummated, the consumer's total monthly debts, including total
monthly housing payments, taxes, property and private mortgage
insurance, any required homeowner or condominium fees, and any
subordinate mortgages, including those that will be made
contemporaneously to the same consumer, exceed 45 percent of the
consumer's established monthly gross income. To rebut the presumption
of inability to repay, the licensed person shall, at minimum,
determine and consider the consumer's residual income after payment
of current expenses and proposed loan payments. However, no
presumption of ability to make the scheduled payments to repay the
obligation shall arise solely from the fact that at the time the loan
is consummated, the consumer's total monthly debts, including
amounts owed under the loan, do not exceed 45 percent of a consumer's
established monthly gross income.
    (2) In the case of a stated income loan, the reasonable belief
requirement in paragraph (1) shall apply, however, for stated income
loans that belief may be based on the income verified by using tax
records, bank statements, payroll receipts, or other reasonable
documentation from a third party. A person shall not knowingly or
willfully originate a high-cost loan as a stated income loan with the
intent, or effect, of evading the provisions of this subdivision. A
high-cost loan shall not be originated as a stated income loan based
solely on a consumer's statement of income.
   (g) A person who originates a high-cost loan shall not pay a
contractor under a home improvement contract from the proceeds of a
high-cost loan other than by an instrument payable to the consumer or
jointly to the consumer and the contractor or, at the election of
the consumer, to a third-party escrow agent for the benefit of the
contractor in accordance with terms and conditions established in a
written escrow agreement signed by the consumer, the person who
originates a high-cost loan, and the contractor prior to the
disbursement of funds. No payments, other than progress payments for
home improvement work that the consumer certifies is completed, shall
be made to an escrow account or jointly to the consumer and the
contractor unless the person who originates the loan is presented
with a signed and dated completion certificate by the consumer
showing that the home improvement contract was completed to the
satisfaction of the consumer.
   (h) It is unlawful for a person who originates a high-cost loan to
recommend or encourage a consumer to default on an existing consumer
loan or other debt in connection with the solicitation or making of
a high-cost loan that refinances all or any portion of the existing
consumer loan or debt.
   (i) A high-cost loan shall not contain a call provision that
permits the lender, in its sole discretion, to accelerate the
indebtedness. This prohibition does not apply if repayment of the
loan has been accelerated in accordance with the terms of the loan
documents (1) as a result of the consumer's default, (2) pursuant to
a due-on-sale provision, or (3) due to fraud or material
misrepresentation by a consumer in connection with the loan or the
value of the security for the loan.
   (j) A person who originates a high-cost loan shall not refinance
or arrange for the refinancing of a consumer loan such that the new
loan is a high-cost loan that is made for the purpose of refinancing,
debt consolidation or cash out, that does not result in a net
tangible benefit to the consumer, considering the consumer's stated
purpose for seeking the loan, fees, interest rates, finance charges,
and points.
   (k) A licensed person shall not receive, directly or indirectly,
any incentive compensation, including a yield spread premium, for
originating a high-cost loan with an interest rate above the
wholesale par rate for which the consumer qualifies.
   (l) A licensed person shall not originate a high-cost loan unless
the loan contract requires the creation of an escrow account and the
collection of the monthly escrow of property taxes and hazard
insurance calculated in accordance with the requirements of Section
2609 of Title 12 of the United States Code and regulations
promulgated pursuant thereto. The provisions of this paragraph do not
apply to a high-cost loan that is secured by a subordinate lien when
the taxes and insurance are escrowed through another loan.
   (m) A licensed person shall not originate a high-cost loan unless
an escrow or impound account is established that remains in existence
for a minimum period of five years or until the consumer has
sufficient equity in the dwelling securing the loan that private
mortgage insurance is not required.
   (n) A licensed person shall not originate a high-cost loan unless
the consumer provides certification from a housing counselor approved
by the United States Department of Housing and Urban Development
that the consumer received counseling on the advisability of the loan
transaction.
   (o) (1) In connection with a high-cost loan, a licensed person
shall not steer, counsel, or direct a consumer to a loan with rates,
charges, principal amount, or prepayment terms that are more costly
than that for which the consumer qualifies.
   (2) If a broker originates a high-cost loan, the broker shall not
steer, counsel, or direct any prospective consumer to accept a loan
product at a higher cost than that for which the consumer could
qualify based on the loan products offered by the persons with whom
the broker regularly does business.
    (p) A person who originates a high-cost loan shall not avoid, or
attempt to avoid, the application of this division by dividing any
loan transaction into separate parts or otherwise structuring a loan
transaction for the purposes of evading the provisions of this
division or by engaging in any other subterfuge with the intent of
evading the provisions of this division.
   (q) A person who originates a high-cost loan shall not act in any
manner, whether specifically prohibited by this section or of a
different character, that constitutes fraud. 
   SEC. 4.   SEC. 3.   Section 4973.2 is
added to the Financial Code, to read:
   4973.2.  The following are prohibited acts and limitations for
subprime  and nontraditional  loans:
   (a) A licensed person shall not originate a subprime  or
nontraditional  loan unless at the time the loan is
consummated, the licensed person reasonably believes the borrower, or
borrowers, when considered collectively in the case of multiple
borrowers, will be able to make the scheduled loan payments, real
estate tax payments, and insurance payments associated with the loan.

   (b) (1) A licensed person shall base its determination of the
borrower's ability to pay on documentation of all sources of income
verified by tax returns, payroll receipts, bank records, or the best
and most appropriate form of documentation available, and the
debt-to-income ratio, the borrower's residual income after payment of
current expenses, and the proposed loan payments.
   (2) A statement provided by the borrower of the income and
financial resources of the borrower, without other documentation
referred to in this subdivision, is not sufficient verification for
purposes of assessing the ability of the borrower to pay.
   (3) The calculation assumptions used in evaluating the ability to
repay a subprime  or nontraditional  loan shall
include the following:
   (A) The monthly payment amounts based on, at a minimum, the fully
indexed rate, assuming a fully amortizing repayment schedule, as well
as amounts for taxes and insurance.
   (B) Verification of all sources of income, as provided in
paragraph (1).
   (4) With regard to subprime  and nontraditional 
loans, there is a rebuttable presumption that a mortgage was made
without regard to repayment ability if, at the time the loan is
consummated, the borrower's total monthly debts, including total
monthly housing payments, taxes, property and private mortgage
insurance, any required homeowner or condominium fees, and any
subordinate mortgages including those that will be made
contemporaneously to the same borrower, exceed 55 percent of the
borrower's established monthly gross income. To rebut the presumption
of inability to repay, the licensed person shall, at minimum,
determine and consider the borrower's residual income after payment
of current expenses and proposed loan payments. However, no
presumption of ability to make the scheduled payments to repay the
obligation shall arise solely from the fact that, at the time the
loan is consummated, the borrower's total monthly debts, including
amounts owed under the loan, do not exceed 55 percent of the borrower'
s established monthly gross income.
   (c) (1) A subprime loan shall not include a prepayment fee or
penalty.
   (2) For a consumer loan that is not a subprime loan and that has
an adjustable interest rate, a creditor shall not charge a prepayment
fee or penalty within six months of the date of the first interest
rate adjustment for the loan.
   (d) (1) A person originating a subprime  or nontraditional
 loan shall not refinance or arrange for the refinancing of
a consumer loan into a new loan for the purpose of refinancing, debt
consolidation or cash out, that does not result in a reasonable net
tangible benefit to the borrower, considering all of the
circumstances, including, but not limited to, the terms of both the
new and refinanced loans, the cost of the new loan including, fees,
interest rates, finance charges, and points, and the borrower's
individual circumstances.
   (2) For a period of one year after the consummation of a subprime
 or nontraditional  loan originated by a licensed
person to a borrower, neither the licensed person who made the loan,
nor any licensed person who holds the loan, or an affiliate of
either, shall refinance the existing subprime  or
nontraditional  loan unless the new loan is no cost for the
borrower or borrowers and includes a lower rate. This paragraph shall
not restrict a licensed person from responding to specific borrower
inquiries regarding refinancing.
   (e) In connection with a subprime  or nontraditional
 loan, a licensed person shall not steer, counsel, or direct
a borrower to a loan with rates, charges, principal amount, or
prepayment terms that are more costly than that for which the
borrower qualifies.
   (f) (1) A licensed person shall not receive, directly or
indirectly, any incentive compensation, including a yield spread
premium, for originating a subprime  or nontraditional
 loan with an interest rate above the wholesale par rate for
which the borrower qualifies.
   (2) Notwithstanding paragraph (1), in a consumer loan other than a
subprime  or nontraditional  loan, a licensed
person may receive compensation in the form of an increased rate not
to exceed 200 basis points above the par rate for which the borrower
qualifies if:
   (A) The licensed person receives no other compensation, however
denominated, directly or indirectly, from the borrower or from
another licensed person.
   (B) The loan does not include discount points, origination points,
or rate reduction points, however denominated, or any payment
reduction fee, however denominated, or any other fees or charges
except bona fide and reasonable charges itemized in Section 226.4(c)
(7) of Title 12 of the Code of Federal Regulations, provided they are
payable to a third party unaffiliated with the licensed person.
   (C) The loan does not include a prepayment penalty.
   (g) A subprime  or nontraditional  loan shall not
contain a provision that increases the interest rate as a result of
a default. This provision does not apply to interest rate changes in
a variable rate loan otherwise consistent with the provisions of the
loan documents, provided the change in the interest rate is not
triggered by an event of default or the acceleration of the
indebtedness.
   (h) A subprime  or nontraditional  loan shall not
contain a call provision that permits the lender, in its sole
discretion, to accelerate the indebtedness. This prohibition does not
apply if repayment of the loan has been accelerated in accordance
with the terms of the loan documents (1) as a result of the borrower'
s default, (2) pursuant to a due-on-sale provision, or (3) due to
fraud or material misrepresentation by a borrower in connection with
the loan or the value of the security for the loan.
   (i) It is unlawful for a person who originates a subprime 
or nontraditional  loan to recommend or encourage a
borrower to default on an existing consumer loan or other debt in
connection with the solicitation or making of a subprime  or
nontraditional  loan that refinances all or any portion of
the existing consumer loan or debt.
   (j) (1) A licensed person shall not originate a subprime 
or nontraditional  loan unless the loan contract requires
the creation of an escrow account and the collection of the monthly
escrow of property taxes and hazard insurance calculated in
accordance with the requirements of Section 2609 of Title 12 of the
United States Code and regulations promulgated pursuant thereto. The
provisions of this paragraph do not apply to a subprime  or
nontraditional  loan that is secured by a subordinate lien
when the taxes and insurance are escrowed through another loan.
   (2) An escrow or impound account established pursuant to paragraph
(1) shall remain in existence for a minimum period of five years and
until the borrower has sufficient equity in the dwelling securing
the subprime  or nontraditional  loan so that
private mortgage insurance is no longer required, unless the
underlying mortgage establishing the account is terminated. 
   (k) (1) A subprime or nontraditional loan shall not be made unless
the following disclosure, written in 12-point typeface or larger,
has been provided to the borrower no later than three business days
prior to signing of the loan documents of the transaction:


   CONSUMER CAUTION NOTICE
    
Because you are receiving this notice, it is likely that this
particular loan is a "subprime loan" that has a higher interest rate
than other mortgage loans and is intended for people with less than
excellent credit, or a "nontraditional loan," such as a no interest
loan or a payment option ARM, that are both subject to specific
                                      disclosure requirements and
protections under California law (Division 1.6 (commencing with
Section 4970) of the Financial Code). Federal regulators have noted
the risky nature of the features of these loans.  
You are not required to complete any loan agreement merely because
you have received these disclosures or have signed a loan
application.  
If you proceed with this mortgage loan, you should also remember that
you may face serious financial risks if you use this loan to pay off
credit card debts and other debts in connection with this
transaction and then subsequently incur significant new credit card
charges or other debts. If you continue to accumulate debt after this
loan is closed and then experience financial difficulties, you could
lose your home and any equity you have in it if you do not meet your
mortgage loan obligations.  
You should consider consulting a qualified independent credit
counselor or other experienced financial adviser regarding the rate,
fees, and provisions of this mortgage loan before you proceed. For
information on contacting a qualified credit counselor, ask your
lender or call the United States Department of Housing and Urban
Development's counseling hotline at ____ or go to ____ for a list of
counselors. 

   (2) It shall be a rebuttable presumption that a licensed person
has met its obligation to provide the disclosure required by
paragraph (1) if the borrower provides the licensed person with a
signed acknowledgment of receipt of a copy of that disclosure.
 
   (l) 
    (k)  It shall be a violation of this division for any
person to avoid the application of this division by dividing any loan
transaction into separate parts or otherwise structuring a loan
transaction for the purpose of evading the provisions of this
division or by engaging in any other subterfuge with the intent of
evading any provision of this division. 
   (m) 
    (l) A licensed person shall not make or cause to be
made, directly or indirectly, any false, deceptive, or misleading
statement, representation, or omission in connection with a subprime
 or nontraditional  loan. 
   (n) 
    (m)  A licensed person shall not finance, directly or
indirectly, into a subprime  or nontraditional 
loan, or finance to the same borrower within 30 days of consummation
of the loan, any credit life, credit disability, credit property, or
credit unemployment insurance premiums, or any debt cancellation or
suspension agreement fees, provided that credit insurance premiums,
debt cancellation, or suspension fees calculated and paid on a
monthly basis shall not be considered financed by the person
originating the loan. For purposes of this section, credit insurance
does not include a contract issued by a government agency or private
mortgage insurance company to insure the lender against loss caused
by a mortgagor's default. 
   (o) 
    (n)  A subprime  or nontraditional 
loan shall not contain a provision for negative amortization such
that the payment schedule for regular monthly payments causes the
principal balance to increase.
   SEC. 5.   SEC. 4.   Section 4974 of the
Financial Code is amended to read:
   4974.  (a) Any compliance failure that was not willful or
intentional and resulted from a bona fide error, that occurred
notwithstanding the maintenance of procedures reasonably adopted to
avoid those errors, including, but not limited to, those involving
clerical, calculation, computer malfunction and programming, and
printing errors shall be corrected no later than 45 days after
receipt of the complaint or discovery of the error. A person who
originates a  high-cost, subprime, or nontraditional
  covered or subprime  loan shall not be
administratively, civilly, or criminally liable for a bona fide error
corrected pursuant to this section.
   (b) If a person who originates  high-cost, subprime, or
nontraditional   covered or subprime  loans makes a
loan where the person knew, or should have known, of and showed
reckless disregard for a violation of this division by a broker, the
person and broker shall be jointly and severally liable for all
damages awarded under this division with respect to the broker's
unlawful conduct.
   This section does not impose or transfer liability for a breach of
the broker's fiduciary duty.
   SEC. 6.   SEC. 5.   Section 4975 of the
Financial Code is amended to read:
   4975.  (a) (1) Any licensed person who violates any provision of
Section 4973, 4973.2, 4979.6, or 4979.7 shall be deemed to have
violated that person's licensing law.
   (2) After a knowing and willful violation, the licensing agency
may bring a proceeding to suspend the license of the licensed person
for not less than six months and not more than three years.
   (b) After a knowing and willful violation resulting in a second or
subsequent administrative or civil action, the licensing agency may
bring a proceeding to permanently revoke the license of the licensed
person or impose any lesser licensed sanction for at least three
years.
   (c) A licensing agency may exercise any and all authority and
powers available to it under any other provisions of law, to
administer and enforce this division including, but not limited to,
investigating and examining the licensed person's books and records,
and charging and collecting the reasonable costs for these
activities. The licensing agency shall not charge a licensed person
twice for the same service. Any civil, criminal, and administrative
authority and remedies available to the licensing agency pursuant to
its licensing law may be sought and employed in any combination
deemed advisable by the licensing agency to enforce the provisions of
this division.
   (d) Nothing in this section shall be construed to impair or impede
a licensing agency's authority under any other provision of law.
   SEC. 7.   SEC. 6.   Section 4977 of the
Financial Code is amended to read:
   4977.  (a) A licensing agency may, after appropriate notice and
opportunity for hearing, by order levy administrative penalties
against a person who violates any provision of this division, and the
person shall be liable for administrative penalties of not more than
ten thousand dollars ($10,000) for each violation. Except for
licensing agencies exempt from the provisions of the Administrative
Procedure Act, any hearing shall be held in accordance with the
Administrative Procedure Act (Chapter 5 (commencing with Section
11500) of Part 1 of Division 3 of Title 2 of the Government Code),
and the licensing agency shall have all the powers granted under that
act.
   (b) Any person who willfully and knowingly violates any provision
of this division shall be liable for a civil penalty of not more than
twenty-five thousand dollars ($25,000) for each violation which
shall be assessed and recovered in a civil action brought in the name
of the people of the State of California by the licensing agency,
Attorney General, city attorney, or district attorney in any court of
competent jurisdiction.
   (c) Nothing in this section requires exhaustion of administrative
remedies prior to an injured party bringing a civil action.
   (d) If the licensing agency, Attorney General, city attorney, or
district attorney determines that it is in the public interest, the
licensing agency, Attorney General, city attorney, or district
attorney may include, in any action for penalties authorized by
subdivision (b), a claim for relief in addition to the penalties,
including a claim for restitution or disgorgement, and the court
shall have jurisdiction to award the additional relief.
   (e) Nothing in this section shall be construed to impair or impede
the Attorney General from representing a licensing agency in
bringing an action to enforce this division at the request and on
behalf of the licensing agency.
   (f) In any action brought by the licensing agency, Attorney
General, city attorney, or district attorney under this division in
which a judgment against a person is rendered, the licensing agency,
Attorney General, city attorney, or district attorney shall be
entitled to recover costs which, in the discretion of the court, may
include an amount representing reasonable attorney's fees and
investigative expenses for services rendered.
   (g) The amounts collected under subdivisions (a) and (b) shall be
deposited in the appropriate fund of the licensing agency to be used
by that licensing agency, subject to appropriation by the
Legislature, for the purposes of financial literacy education and
enforcement in connection with abusive lending practices.
   SEC. 8.   SEC. 7.   Section 4978 of the
Financial Code is amended to read:
   4978.  (a) A person who fails to comply with the provisions of
this division is civilly liable to the consumer in an amount equal to
any actual damages suffered by the consumer, plus attorney's fees
and costs. For a willful and knowing violation of this division, the
person shall be liable to the consumer in the amount of twenty-five
thousand dollars ($25,000) or the consumer's actual damages,
whichever is greater, plus attorney's fees and costs.
   (b) (1) If a provision in a contract in a  high-cost
  covered  loan violates Section 4973, or a
provision in a contract in a subprime  or nontraditional
 loan violates Section 4973.2, or a provision in a contract
of any of those loans violates Section 4979.6, or Section 4979.7,
that provision is unenforceable. A court in which any action is
brought by, or on behalf of, an aggrieved consumer for relief may
issue an order or injunction to reform the terms of the 
high-cost, subprime, or nontraditional   covered or
subprime  loan to conform to the provisions of this division.
   (2) A court may, in addition to any other remedy, award punitive
damages to the consumer upon a finding that such damages are
warranted pursuant to Section 3294 of the Civil Code.
   (c) Nothing in this section is intended, nor shall be construed,
to abrogate existing common law provisions prohibiting double
recovery of damages.
   (d) Without regard to whether a consumer is acting individually,
jointly, or on behalf of others similarly situated, any provision in
a contract of a  high-cost, subprime, or nontraditional
  covered or subprime  loan that allows a party to
require the consumer to assert any claim or defense in a forum that
is less convenient, more costly, or more dilatory for the resolution
of a dispute than a judicial forum established in this state where
the consumer may otherwise properly bring a claim or defense or that
limits in any way any claim or defense the consumer may have is
unconscionable and void.
   (e) Any provision in a contract of a  high-cost, subprime,
or nontraditional   covered or subprime  loan that
purports to waive the consumer's right to participate in a class
action, or to pursue any claims in a class action or other
consolidated or joint action, is unconscionable and void.
   SEC. 9.   SEC. 8.   Section 4978.6 of
the Financial Code is amended to read:
   4978.6.  A person who originates  high-cost, subprime, or
nontraditional   covered or subprime  loans shall
inform any employee, who originates those loans on behalf of the
person, of the administrative or civil penalties for a violation of
this division.
   SEC. 10.   SEC. 9.   Section 4979 of the
Financial Code is amended to read:
   4979.  Upon request, a person who originates a  high-cost,
subprime, or nontraditional   covered or subprime 
loan shall provide the licensing agency, Attorney General, city
attorney, district attorney, or the consumer, at no cost,
documentation regarding his or her loan that clearly demonstrates
whether any loan is a  high-cost, subprime, or nontraditional
  covered or subprime  loan. This documentation
shall include, but not be limited to, full disclosure of the original
principal balance, the annual percentage rate, and the total points
and fees, as defined in Section 4970.
   SEC. 11.  SEC. 10.   Section 4980 is
added to the Financial Code, to read:
   4980.  It shall constitute a defense against foreclosure on a
property secured by a  high-cost, subprime, or nontraditional
  covered or subprime  loan if that loan is in
violation of this division.
   SEC. 12.   SEC. 11.   The provisions of
this act shall apply to  high-cost, subprime, and
nontraditional   covered and subprime  loans
originated on and after January 1, 2009.
   SEC. 13.  SEC. 12.   The provisions of
this act are severable. If any provision of this act or its
application is held invalid, that invalidity shall not affect other
provisions or applications that can be given effect without the
invalid provision or application.
   SEC. 14.   SEC. 13.   No reimbursement
is required by this act pursuant to Section 6 of Article XIII B of
the California Constitution because the only costs that may be
incurred by a local agency or school district will be incurred
because this act creates a new crime or infraction, eliminates a
crime or infraction, or changes the penalty for a crime or
infraction, within the meaning of Section 17556 of the Government
Code, or changes the definition of a crime within the meaning of
Section 6 of Article XIII B of the California Constitution.