California Mortgage

California has been a high profile state during the current turmoil in the mortgage industry. One of the reasons for their prominence has been the continued leadership in outrageously overpriced homes. Prospective buyers have been using every type of exotic non-traditional loan to get into the housing market; often those loans are of the jumbo variety. In 2006, California accounted for 33% of the subprime loans written in the country. One of the star corporate players in the subprime market, New Century Corporation, filed for bankruptcy in the spring of 2007 after several years of spectacular growth built on risky loans.

Just as the American Association of Residential Mortgage Regulators has made pre-emptive self-policing proposals at the national level, the California Association of Mortgage Brokers has come up with a proposed slate of industry "best practices" to try to restore order in the California mortgage sector. Some of their suggestions will require legislation while others will merely require honest participation on the part of industry professionals. The practices are all aimed at giving consumers more information and education to help them better understand and prepare for "nontraditional" mortgages. The practices also seek additional regulations and beefed up enforcement of existing lending laws.

One of their suggestions is licensing loan originators and requiring them to submit to examinations, continuing education and criminal background checks, as is currently required of licensed mortgage brokers. Mortgage brokers are typically licensed through the California Department of Real Estate. Loan originators need not be licensed if they work for a licensed broker or lending company which is regulated by the state's Department of Corporations. That corporation, in turn, may well be based in some other state.

Another example of regulatory issues slipping between the layers of bureaucracy is the varied requirements for disclosure. The California Mortgage Brokers would support encouraging consumers to comparison shop across distribution channels by providing uniform disclosures no matter the loan source. Brokers in California have to disclose payments received from the lender but mortgage bankers need not disclose similar payments. The Association also calls for a higher level of education and transparency on the actual long-range cost of nontraditional mortgage products such as interest only ARM's; option ARM's; and reverse mortgages.

California mortgage law is enforced principally by the Department of Real Estate. Their FAQs and instructions for complaints can be found at http://www.dre.cahwnet.gov/faqs_ln.htm.

In an eloquent demonstration of bureaucratic deference, the Department of Real Estate also provides some detailed referrals for issues that they do NOT regulate. You can learn about those laws - such as the Truth in Lending Act - at http://www.dre.cahwnet.gov/mcomplnt.htm. It's actually a decent resource for determining just what law defines mortgage requirements for all the various components that make up a home purchase with borrowed money.