New Lending Legislation in Sacramento

New legislation is planned by the California State Assembly, that would include a major re-write to sections of the California Financial Code. These changes would include eliminating amortization loans, stated income loans, and put major caps on yield spread premiums, pre-payment penalties and balloon payments. These changes, not yet announced on the legislature floor, would dramatically alter the lending landscape in California and set a substantial new precedent for future state and federal regulatory changes.

An excerpt from Housing Wire states:

In addition to outlawing option ARM mortgages altogether, the bill would essentially eliminate stated-income lending for high-cost, subprime and non-traditional mortgages. The bill's language says stated income applications must be "verified," which really means they aren't stated at all. The bill would also outlaw YSP as a method of compensation for high-cost, subprime and non-traditional mortgages.

The use of YSP in all other mortgages (including, ostensibly, prime originations) would be limited by establishing a rate ceiling of 200 basis points above par, and only permitting the use of YSP whenever it is the broker's sole form of compensation on a loan.

For high-cost mortgages in particular, the bill would outlaw balloon payments and prepayment penalties, as well as requiring full borrower documentation. The bill would also require certification of third-party counseling "on the advisability of the loan transaction" from a HUD-approved agency prior to origination.