BILL NUMBER: AB 1830	AMENDED
	BILL TEXT

	AMENDED IN SENATE  JUNE 12, 2008
	AMENDED IN ASSEMBLY  MAY 28, 2008
	AMENDED IN ASSEMBLY  MAY 23, 2008
	AMENDED IN ASSEMBLY  APRIL 1, 2008

INTRODUCED BY   Assembly Members Lieu  , Bass,  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, and Torrico)

                        JANUARY 23, 2008

    An act to amend Sections 4970, 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
  An act to add Division 1.9 (commencing with Section
4995) to the  Financial Code, relating to loans.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1830, as amended, Lieu.  Covered and subprime 
 Subprime home  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 establish  "subprime  
"subprime home  loans," as defined, as  a  new 
categories   category  of regulated loans 
, and would make various conforming changes to existing law relative
to these loans  . The bill would prohibit a subprime 
home  loan from including prepayment penalties  ,  
except under specified conditions,  and from including a
provision for negative amortization. The bill would prohibit a 
licensed  person  , as defined,  from making a subprime
 home  loan unless at the time the loan is consummated the
 licensed  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, among other things, prohibit a  licensed person
  mortgage broker, as defined,  who originates
subprime  home  loans from receiving a yield spread premium
 or other incentive compensation, in certain circumstances
and would prohibit a person from originating a subprime loan unless
an escrow or impound account is established for a specified period of
time.   unless specified disclosures are provided to
the borrower and certain other conditions are satisfied. The bill
would require the Secretary of Business, Transportation and Housing,
by July 1, 2009, to create a disclosure form for use by licensed
persons originating subprime home loans. The bill would provide that
a violation of the provisions regulating subprime home loans by a
licensed person is also a violation of the person's licensing law.
 The bill would authorize a licensing agency  to levy
administrative   or the Attorney General to enforce the
provisions regulating subprime home loans. The bill would authorize
civil  penalties in an amount up to $10,000 against a 
licensed  person who  willfully and knowingly  violates
the provisions regulating  covered and  subprime
 home  loans and would make a  licensed  person who
 makes a willful and knowing violation of  
violates  those provisions of law liable to the 
consumer   borrower  in the amount of 
$25,000 or  the  consumer's   borrower'
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 covered and
subprime loans.  The bill would  provide that it is
a defense against foreclosure on a property secured by a covered or
subprime loan if the loan is in violation of the laws regulating
those loans   establish specified duties for mortgage
brokers performing mortgage brokerage services for subprime home
loans and would make those mortgage brokers jointly and severally
liable with a licensed person for violations of the provisions
regulating subprime home loans  . The bill's provisions would
apply to  covered and  subprime  home 
loans originated on or after  January   July
 1, 2009. Because a violation of the bill's provisions by
certain licensed persons may be punished as crimes  under the
person's licensing law  , 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.    Division 1.9 (commencing with Section
4995) is added to the   Financial Code   , to read:
 

      DIVISION 1.9.  SUBPRIME HOME LOANS


   4995.  The following definitions shall apply 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 (15 U.S.C. Sec. 1601, et seq.) and the regulations
promulgated thereunder by the Federal Reserve Board.
   (b) "Closed end loan" means a loan other than an open end credit
plan as defined in this section.
   (c) "Home loan" means a loan that has all of the following
characteristics:
   (1) The loan is not an equity line of credit, a construction loan,
a Federal Housing Administration-insured loan, a United States
Department of Veterans Affairs-guaranteed loan, or a reverse mortgage
transaction.
   (2) The borrower is a natural person.
   (3) The debt is incurred by the borrower primarily for personal,
family, or household purposes.
   (4) The principal amount of the loan does not exceed the most
current conforming loan size limit for a single-family dwelling
established for the Federal National Mortgage Association.
   (5) The loan is secured by (A) a security interest in a
manufactured home in the state which is or will be occupied by the
borrower as the borrower's principal dwelling, (B) a mortgage or deed
of trust on real property in the state upon which there is located
an existing structure designed principally for occupancy by one to
four families that is or will be occupied by the borrower as the
borrower's principal dwelling, or (C) a mortgage or deed of trust on
real property in the state upon which there is to be constructed
using the loan proceeds a structure or structures designed
principally for occupancy by one to four families which, when
completed, will be occupied by the borrower as the borrower's
principal dwelling.
   (d) "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)).
   (e) "Mortgage broker" means a licensed person that provides
mortgage brokerage services. For purposes of this division, a
licensed person who makes home loans is a "mortgage broker," and
subject to the requirements of this division applicable to mortgage
brokers, only with respect to transactions in which the licensed
person provides mortgage brokerage services.
   (f) "Mortgage brokerage services" means obtaining or attempting to
obtain, on behalf of a borrower, for compensation paid directly or
indirectly, a subprime home loan made by unaffiliated third parties,
or closing a subprime home loan that may be in the mortgage broker's
own name with funds provided by an unaffiliated third party and which
loan is thereafter assigned to the person providing the funding of
the loan.
   (g) "Obligor" means a borrower, coborrower, cosigner, or guarantor
obligated to repay a subprime home loan.
   (h) "Open end credit plan" means credit extended by a licensed
person under a plan in which (1) the licensed person reasonably
contemplates repeated transactions, (2) the licensed person may
charge interest or otherwise impose a finance charge from time to
time on an outstanding unpaid balance, and (3) the amount of credit
that may be extended to the obligor during the term of the plan, up
to any credit limit set by the licensed person, is generally made
available to the extent that any outstanding balance is repaid.
   (i) "Subprime home loan" means a home loan originated by a
licensed person where both of the following apply:
   (1) The difference between the annual percentage rate for the loan
and the yield on United States 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 Home Mortgage Disclosure Act (12 U.S.C. Sec. 2801, et seq.)
(HMDA), the difference between the annual percentage rate and the
yield on United States 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 HMDA, provided that the yield on United
States Treasury securities shall be determined as of the 15th day of
the month prior to the application for the loan.
   (2) The difference between the annual percentage rate for the loan
and the conventional mortgage rate 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. For
purposes of this calculation, the "conventional mortgage rate" means
the most recent daily contract interest rate on commitments for
fixed rate first mortgages published by the Board of Governors of the
Federal Reserve System in its Statistical Release H.15, during the
week preceding the week in which the interest rate for the loan is
set.
   4995.1.  (a) A licensed person shall not offer the borrower a
subprime home loan that contains a provision for a prepayment
penalty, unless: (1) the licensed person offers the borrower the same
subprime home loan without a prepayment penalty, (2) the subprime
home loan with a prepayment penalty is offered at a discounted
interest rate, (3) the prepayment penalty does not exceed 2 percent
of the principal balance prepaid for prepayment occurring before the
first anniversary of loan closing, 1 percent of the principal balance
prepaid for prepayment occurring on or after the first anniversary
of loan closing but before the second anniversary of loan closing,
and 1 percent of the principal balance prepaid for prepayment
occurring on or after the second anniversary but not later than the
third anniversary of loan closing, and (4) the prepayment penalty
expires at the earlier to occur (A) three months before any scheduled
payment increase or (B) the third anniversary of the loan closing.
   (b) No licensed person shall make a subprime home loan unless the
licensed person reasonably and in good faith believes at the time the
loan is consummated that one or more of the obligors, when
considered individually or collectively, has the ability to repay the
loan according to its terms and to pay applicable real estate taxes
and hazard insurance premiums. The licensed person shall determine
whether an obligor has the ability to repay the loan as follows:
   (1) A licensed person's analysis of an obligor's ability to repay
a subprime home loan according to the loan terms and to pay related
real estate taxes and insurance premiums shall be based on a
consideration of the obligor's credit history, current and expected
income, current obligations, employment status, and other financial
resources other than the obligor's equity in the real property that
secures repayment of the subprime home loan.
   (2) In determining an obligor's ability to repay a subprime home
loan, the licensed person shall take reasonable steps to verify the
accuracy and completeness of information provided by or on behalf of
the obligor using tax returns, payroll receipts, bank records,
reasonable alternative methods, or reasonable third-party
verification.
   (3) In determining an obligor's ability to repay a subprime home
loan according to its terms when the loan has an adjustable rate
feature, a licensed person shall calculate the monthly payment amount
for principal and interest by assuming (A) the loan proceeds are
fully disbursed on the date of the loan closing, (B) the loan is to
be repaid in substantially equal monthly amortizing payments of
principal and interest over the entire term of the loan, with no
balloon payment, and (C) the interest rate over the entire term of
the loan is a fixed rate equal to the fully indexed interest rate at
the time of the loan closing, without considering any initial
discounted rate. The "fully indexed interest rate at the time of the
loan closing" means the index rate prevailing on a loan at the time
the loan is made plus the margin that will apply after the expiration
of any introductory interest rates.
   (4) A licensed person's analysis of an obligor's ability to repay
a subprime home loan may utilize reasonable commercially recognized
underwriting standards and methodologies, including automated
underwriting systems, provided the standards and methodologies comply
with the provisions of this section.
   (5) If a licensed person making a subprime home loan knows that
one or more home loans secured by the same real property will be made
contemporaneously to the same borrower with the subprime home loan
being made by that licensed person, the licensed person making the
subprime home loan must document the borrower's ability to repay the
combined payments of all home loans on the same real property.
   (c) The provisions of this division shall apply to any licensed
person who in bad faith attempts to avoid the application of this
division by (1) dividing any loan transaction into separate parts for
the purpose and with the intent of evading the provisions of this
chapter, or (2) any other subterfuge.
   (d) A licensed person shall not make, or cause to be made, any
false, deceptive, or misleading statement or representation in
connection with a subprime home loan.
   (e) (1) A mortgage broker that originates a subprime home loan
shall not receive a yield spread premium unless: (A) the mortgage
broker discloses, in writing, the amount of the yield spread premium
the mortgage broker will receive at the time of application, (B) the
mortgage broker discloses in writing to the borrower at the time of
application a lower interest rate from the same lender that does not
provide for the payment of a yield spread premium by the lender to
the mortgage broker, and the mortgage broker offers the borrower the
option of obtaining the subprime home loan with that lower interest
rate subject to the payment of the mortgage broker's fee by the
borrower, and (C) the compensation received by the broker must be the
same, whether the borrower chooses the loan with the yield spread
premium or the loan with the lower interest rate and a mortgage
broker fee paid by the borrower.
   (2) On or before July 1, 2009, the Secretary of Business,
Transportation and Housing shall, by rule, create a disclosure form
for use by licensed persons that fulfills the disclosure requirements
of this subdivision.
   (f) For a period of six months after the consummation of a
subprime home loan, no licensed person may refinance or arrange for
the refinancing of the subprime home loan unless: (1) the borrower is
not required to pay any costs in connection with the new loan at or
before the loan closing, and (2) the new loan will reduce the
aggregate amount of interest the borrower will pay during the term of
the new loan, when compared to interest due over the full term of
the current loan. If either loan is an adjustable rate loan, the
comparison shall be based on the market interest rates on the date
the comparison is made.
   (g) It shall be unlawful for any licensed person that makes a
subprime home loan to finance, directly or indirectly, any credit
life, disability, or unemployment insurance, or any other life or
health insurance premiums, provided that insurance premiums
calculated and paid on a monthly basis shall not be considered
financed by the licensed person.
   (h) No licensed person shall recommend or encourage default on an
existing loan or other debt prior to and in connection with the
closing or planned closing of a subprime home loan that refinances
all or any portion of the existing loan or debt.
   (i) A licensed person shall not make a subprime home loan that
contains a provision for negative amortization such that the
underwritten payment schedule for regular monthly payments causes the
principal balance to increase.
   (j) A licensed person who makes a subprime home loan who, when
acting in good faith, fails to comply with this section, shall not be
liable if the licensed person establishes either of the following:
   (1) Within 90 days of the loan closing and prior to the
institution of any action against the licensed person under this
section, the borrower was notified of the compliance failure, the
licensed person tendered appropriate restitution, the licensed person
offered, at the borrower's option, either to (A) make the subprime
home loan comply with the requirements of this division or (B) change
the terms of the loan in a manner beneficial to the borrower so that
the loan will no longer be considered a subprime home loan subject
to the provisions of this division, and within a reasonable period of
time following the borrower's election of remedies, the licensed
person took appropriate action based on the borrower's choice.
   (2) The compliance failure was not intentional and resulted from a
bona fide error notwithstanding the maintenance of procedures
reasonably adopted to avoid those errors, and within 120 days after
receipt of a complaint or the discovery of the compliance failure or
the licensed person's receipt of written notice of the compliance
failure, the borrower was notified of the compliance failure, the
licensed person tendered appropriate restitution, the licensed person
offered, at the borrower's option, either to (A) make the subprime
home loan comply with the requirements of this division or (B) change
the terms of the loan in a manner beneficial to the borrower so that
the loan will no longer be considered a subprime home loan subject
to the provisions of this division, and within a reasonable period of
time following the borrower's election of remedies, the licensed
person took appropriate action based on the borrower's choice.
Examples of a bona fide error include clerical, calculation, computer
malfunction and programming, and printing errors.
   4995.2.  (a) Any licensed person who violates any provision of
this division shall be deemed to have violated that person's
licensing law. The licensing agency may, by order and after
appropriate administrative hearing, prohibit licensees under this
division from engaging in acts and practices in connection with
subprime home loans that the licensing agency finds to be unfair,
deceptive, and designed to evade laws of this state.
   (b) The provisions of this division may be enforced only by the
Attorney General or the licensed person's licensing agency. Any
licensed person who willfully and knowingly violates any provision of
this division shall be liable for a civil penalty of not more than
ten thousand dollars ($10,000) for each violation.
   (c) A prepayment penalty, or yield spread premium provision of a
subprime home loan that violates this division shall be
unenforceable.
   (d) Notwithstanding subdivision (b), a licensed person who
violates any provision of this division is civilly liable to the
borrower for actual damages suffered by the borrower that occur as
the result of the violation.
   4995.3.  (a) A mortgage broker performing mortgage brokerage
services for subprime home loans, shall, in addition to duties
imposed by other statutes or at common law, do all of the following:
   (1) Safeguard and account for any money handled for the borrower.
   (2) Follow reasonable and lawful instructions from the borrower.
   (3) Act with reasonable skill, care, and diligence.
   (4) Make reasonable efforts to secure a loan that is reasonably
advantageous to the borrower considering all the circumstances,
including the rates, charges, and repayment terms of the loan.
   (5) Timely and clearly disclose to the borrower material
information that may reasonably be expected to influence the borrower'
s decision and is reasonably accessible to the mortgage broker,
including the total compensation the mortgage broker expects to
receive from any and all sources in connection with each loan option
presented to the borrower.
   (6) Notify, before closing, each lender of the particulars of each
of the other lender's home loans if the mortgage broker knows that
more than one home loan will be made by different lenders
contemporaneously to a borrower secured by the same real property.
   (7) Provide applicants to whom credit has been denied
opportunities to correct or explain adverse or inadequate information
or to provide additional information.
   (b) A mortgage broker is the fiduciary of the borrower and any
violation of the person's fiduciary duties shall be a violation of
this division. A mortgage broker who provides mortgage brokerage
services owes this fiduciary duty to the borrower regardless of
whether the mortgage broker is acting as an agent for any other party
in connection with the loan transaction.
   (c) A mortgage broker who performs mortgage brokerage services in
connection with a subprime home loan, the terms of which violate the
requirements of Section 4995.1, shall be jointly and severally liable
with the licensed person for that violation.
   4995.4.  The provisions of this division shall apply to subprime
home loans originated on or after July 1, 2009.
   4995.5.  The provisions of this division are severable. If any
provision of this division 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. 2.    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.  All matter omitted in this version of
the bill appears in the bill as amended in the Assembly, May 28,
2008. (JR11)