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Date: 9/25/2008
Authors: Marc Lifsher

News Bite

Schwarzenegger vetoes bill increasing oversight of mortgage brokers

Gov. Arnold Schwarzenegger has vetoed two foreclosure-related bills. The first, AB 1830, by Assemblyman Ted Lieu (D-Torrance), was the most far-reaching of more than a dozen introduced by California lawmakers in January as residential foreclosures rose and the subprime mortgage crisis began to ravage California's economy.

The motives of Lieu's bill "are to be lauded," but it overreaches, Schwarzenegger said. The governor said the proposal would put state-regulated mortgage brokers at a competitive disadvantage against other brokers handling federally regulated mortgages. The proposed restrictions would not have covered state and federally chartered banks, such as Countrywide or Wells Fargo, that also offer mortgages but do not use brokers.

Schwarzenegger administration officials, agreeing with arguments put forth by the California Assn. of Realtors, complained that Lieu's bill, while well-intentioned, could have made it hard for some buyers to get loans once the current credit drought ends. Schwarzenegger also criticized the bill for allowing homeowners to collect attorneys' fees from successful lawsuits alleging broker misconduct. Such awards "will likely lead to increased litigation," he said.

In a related veto, Schwarzenegger quashed a bill by Bay Area Assemblyman Alberto Torrico (D-Newark) that would have required giving borrowers 90 days' notice that their adjustable-rate loans would reset higher, with an estimate of how much payments would rise. Such notification could confuse mortgage holders, Schwarzenegger said.

Shortly before imposing the veto, Schwarzenegger announced that he had signed 10 other mortgage-related bills, more narrow in scope, that he said would "increase the accountability in the real estate market." The approved bills require brokers to disclose their license number upon first contact with customers, allow regulators to suspend a real estate license for violations of state law and establish a state mortgage refinancing program. In July, Schwarzenegger signed a measure requiring loan servicers to contact borrowers and talk about restructuring their loans before initiating foreclosure proceedings.

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