BILL ANALYSIS
AB 919
Page 1
Date of Hearing: April 20, 2009
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Pedro Nava, Chair
AB 919 (Nava) - As Amended: April 13, 2009
SUBJECT : Mortgages: information and recordation
SUMMARY: Requires a rider to be attached to a mortgage or deed
of trust that provides information on the participants of a
mortgage transaction. Specifically, this bill :
1)Requires that the name and license number, if applicable,
shall be disclosed on a rider attached to a mortgage or deed
of trust that lists the following:
a) Appraiser;
b) Lender;
c) Loan originator; and,
d) Real estate broker.
2)Provides that the recorder shall not accept for recordation
any mortgage or deed of trust executed after January 1, 2010,
unless it includes a completed rider.
EXISTING LAW regulates under the Civil Code the method and
manner in which the transference of real property shall take
place under a mortgage or deed of trust.
FISCAL EFFECT : Unknown
COMMENTS :
AB 919 will assist law enforcement and prosecutors with mortgage
fraud cases by making sure that the names and license numbers of
person who participate in a mortgage loan transaction are in the
public record.
The subprime mortgage crisis, and subsequent foreclosure crisis
is often viewed as solely a result of poor underwriting on the
part of lenders, and over-leveraged borrowers. The role of
mortgage fraud has, largely, been overlooked in its contribution
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to the housing crisis.
Mortgage fraud is the intent to materially misrepresent or omit
information on a mortgage loan application in order to obtain a
loan or to obtain a larger loan than would have been obtained
had the lender known the truth. Mortgage fraud does not
necessarily just take place on the part of borrowers. Often in
large mortgage fraud rings, the participants range from the
borrower, escrow officers, brokers, appraisers and even lenders.
The potential impact of mortgage fraud on financial institutions
and the stock market is clear. If fraudulent practices become
systemic within the mortgage industry and mortgage fraud is
allowed to become unrestrained, it will ultimately place
financial institutions at risk and have adverse effects on the
stock market. Investors may lose faith and require higher
returns from mortgage backed securities. This may result in
higher interest rates and fees paid by borrowers and limit the
amount of investment funds available for mortgage loans.
The increased reliance by both financial institutions and
non-financial institution lenders on third-party brokers has
created opportunities for organized fraud groups, particularly
where mortgage industry professionals are involved.
Combating significant mortgage industry fraud is a priority,
because mortgage lending and the housing market have a
significant overall effect on the nation's economy.
Mortgage loan fraud is divided into two categories: fraud for
property and fraud for profit. Fraud for property/housing
entails minor misrepresentations by the applicant solely for the
purpose of purchasing a property for a primary residence. This
scheme usually involves a single loan. Although applicants may
embellish income and conceal debt, their intent is to repay the
loan. Fraud for profit, however, often involves multiple loans
and elaborate schemes perpetrated to gain illicit proceeds from
property sales. It is this second category that is of most
concern to law enforcement and the mortgage industry. Gross
misrepresentations concerning appraisals and loan documents are
common in fraud for profit schemes and participants are
frequently paid for their participation. Recent events likely
resulted in an increase in mortgage fraud as higher housing
prices tempted borrowers to commit fraud for property in order
to qualify for a mortgage loan. Also, mortgage fraud
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perpetrators likely seized the opportunity to take advantage of
the relaxed lending practices to commit fraud for profit.
A report on mortgage fraud from the Federal Bureau of
Investigations revealed the following findings:
Mortgage fraud continues to be an escalating problem in
the United States. Although no central repository collects
all mortgage fraud complaints, Suspicious Activity Reports
(SARs) from financial institutions indicated an increase in
mortgage fraud reporting. SARs increased 31-percent to
46,717 during Fiscal Year (FY) 2007. The total dollar loss
attributed to mortgage fraud is unknown. However, 7 percent
of SARs filed during FY 2007 indicated a specific dollar
loss, which totaled more than $813 million.
Subprime mortgage issues remain a key factor in
influencing mortgage fraud directly and indirectly. The
subprime share of outstanding loans has more than a doubled
since 2003 putting a greater share of loans at higher risk
of failure. Additionally, during 2007 there were more than
2.2 million foreclosure filings reported on approximately
1.29 million properties nationally, up 75 percent from
2006. The declining housing market affects many in the
mortgage industry who are paid by commission. During
declining markets, mortgage fraud perpetrators may take
advantage of industry personnel attempting to generate
loans to maintain current standards of living.
Analysis of available information indicated that
mortgage fraud was most concentrated in the north central
region of the United States. Data from law enforcement and
industry sources were compared and mapped to determine
which states were most affected by mortgage fraud during
2007 and indicated that the top 10 mortgage fraud states
for 2007 were Florida, Georgia, Michigan, California,
Illinois, Ohio, Texas, New York, Colorado, and Minnesota.
Other states significantly affected by mortgage fraud
according to available sources included Arizona, Maryland,
Utah, Nevada, Missouri, Indiana, Tennessee, Virginia, New
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Jersey, and Connecticut.
The downward trend in the housing market provides an
ideal climate for mortgage fraud perpetrators to employ a
myriad of schemes suitable to a down market. Several of
these schemes have emerged with the potential to spread as
the recent rise in foreclosures, depressed housing prices,
and decreased demand place pressure on lenders, builders,
and home sellers. Emerging and re-emerging schemes for 2007
included builder-bailouts, seller assistance, short sales,
foreclosure rescue, and identity thefts exploiting home
equity lines of credit.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081