Industry NewsMortgage

California to adopt federal guidance for subprime, ‘exotic’ loans

State also giving housing agency $2 billion in additional borrowing capacity

California lawmakers will allow the state's Housing Finance Agency to take on another $2 billion in debt while criminalizing attempts to pressure appraisers and adopting federal guidance for subprime and "exotic" loans. California Gov. Arnold Schwarzenegger promised this week to sign into law three separate bills affecting mortgage lending in the state, including legislation that would subject lenders licensed at the state level to guidance that had pertained only to federally chartered lenders. The guidance advises lenders to provide more complete disclosure of loan terms, and to qualify borrowers at the fully indexed rate -- assessing whether they will be able to afford their monthly payments even after interest rates reset. The guidance for "exotic" interest-only and pay-option adjustable-rate mortgage (ARM) loans was issued to federally chartered lenders more than a year ago. It has since been adopted by 38 other states, according to the Conference of State Bank Superv...

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