A sweeping subprime lending reform bill that requires lenders to qualify borrowers for their ability to pay over the life of a loan, rather than at teaser rates, passed the California State Assembly this week.

The Subprime Lending Reform Act of 2008 (AB 1830) is sponsored by Assemblymember Ted Lieu (D-Torrance) and includes provisions that would abolish certain bonuses that brokers benefit from after guiding borrowers into riskier, high-cost loans. In addition, Lieu’s bill would prohibit lending practices that are considered dangerous for borrowers, including negative amortization loans and prepayment penalties. Lieu’s bill says both of these practices are preventing certain borrowers from refinancing into new home loans.
“Predatory lending and the unregulated excesses of the mortgage frenzy the last few years have resulted in shattered dreams and severely damaged the state and national economy. With this bill, we’re saying never again will a crisis of this magnitude happen in California,” Lieu said. “While we can’t change mortgage contracts that are already signed, we’re going to make sure we never go down this path again.”
Lieu’s bill is now heading to the State Senate for a vote.