BILL ANALYSIS
AB 919
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ASSEMBLY THIRD READING
AB 919 (Nava)
As Amended June 1, 2009
Majority vote
BANKING & FINANCE 11-0 APPROPRIATIONS 17-0
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|Ayes:|Nava, Gaines, Anderson, |Ayes:|De Leon, Nielsen, |
| |Evans, Fong, Fuentes, | |Ammiano, |
| |Mendoza, Ruskin, Swanson, | |Charles Calderon, Davis, |
| |Torres, Tran | |Duvall, Fuentes, Hall, |
| | | |Harkey, Miller, |
| | | |John A. Perez, Price, |
| | | |Skinner, Solorio, Audra |
| | | |Strickland, Torlakson, |
| | | |Krekorian |
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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 a mortgage or deed of trust that is secured by
residential real property that does not have the attached
rider shall be void.
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 : According to the Assembly Appropriations
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Committee, no direct state costs.
COMMENTS : AB 919 will assist law enforcement and prosecutors
with mortgage fraud cases by making sure that the names and
license numbers of a person who participates 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
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
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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
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:
1)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% to 46,717 during fiscal
year (FY) 2007. The total dollar loss attributed to mortgage
fraud is unknown. However, 7% of SARs filed during FY 2007
indicated a specific dollar loss, which totaled more than $813
million.
2)Subprime mortgage issues remain a key factor in influencing
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mortgage fraud directly and indirectly. The sub prime 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%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.
3)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 Jersey, and Connecticut.
4)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.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081
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FN: 0001244