Economy Watch – Mortgage Reforms From Out West
- Oct 14, 2009
By: Dees Stribling, Contributing Editor
California Gov. Arnold Schwarzenegger signed green legislation over the weekend, as covered by CPE on Monday, but also nestled in the raft of bills that he signed were major overhauls of the rules governing residential mortgages. The thrust of the reforms was to help prevent some of the mortgage origination abuses that were rampant in the mid-2000s, and which did their part to inflate the housing bubble.
In fact, the Governator signed no fewer than seven new laws regulating mortgages. AB 260, for instance, disallows mortgage brokers from steering borrowers to higher-interest, higher-risk mortgage products when they qualify for lower-cost, lower-risk mortgages. The law also bans the insidious negative-amortization loans, infamous for offering those low, low monthly payments–so low that the borrower gets deeper in the hole over time. AB 260 further limits prepayment penalties to no more than 2 percent of the loan balance.
The other new laws, among other things, set licensing requirements for all residential loan originators; allow buyers of foreclosed homes, rather than the sellers, to select an escrow officer; make it a felony to commit fraud on a mortgage loan application; and require that loan documents be written in the same language as the verbal negotiations. The California Association of Mortgage Brokers, the California Mortgage Association and the California Association of Realtors all tried unsuccessfully to torpedo a number of these reforms–similar proposals were sunk last year–but the tsunami of defaults and foreclosures in California argued the point strongly for reform this time around.
More Trouble for Atlantic Yards
Develop Don’t Destroy Brooklyn and the Straphangers Campaign, both advocacy groups, as well as New York State Senator Velmanette Montgomery and other local politicos, have filed suit to stop the sale of a 22-acre Brooklyn site to developer Forest City Ratner for the Atlantic Yards redevelopment project. The petitioners are charging specifically that New York’s Metropolitan Transit Authority, owners of the parcel on which the much-disputed project will sit, didn’t get an independent appraisal of the site, nor seek competitive bids, when it agreed to the sale this summer for $20 million up front and $80 million over the next 22 years.
“The MTA failed to fulfill either of these legal requirements when its board approved its new deal with Forest City Ratner on June 24th, 2009,” Montgomery said in a statement. Develop Don’t Destroy Brooklyn is considerably less legalistic when it voices its objections to the Atlantic Yards plan: “Besides relying on the use of taxpayer subsidies, the project relies on an abusive use of eminent domain which would allow the State of New York to seize private properties, homes and businesses, and hand them over to Forest City Ratner to demolish,” the group asserted in June, reiterating long-held contentions. “The use of eminent domain has been called unconstitutional and is currently being challenged in New York State court.”
Last month, Forest Ratner sold the 80 percent of the New York Nets to Russian billionaire Mikhail Prokhorov, as well as 45 percent of the arena that Forest Ratner wants to built at the Atlantic Yards to house the Nets, and the right to buy as much as 20 percent of the Atlantic Yards Development Co.
Wall Street wobbled around a lot on Tuesday, with some stocks especially sensitive to news that the Senate Finance Committee passed its version of health-care overhaul. After all was said and done, the Dow Jones Industrial Average ended down 14.74 points, or 0.15 percent. The S&P 500 lost 0.28 percent, but the Nasdaq gained 0.04 percent.