SACRAMENTO — A yearlong push by lawmakers to combat growing numbers of mortgage foreclosures by making sweeping changes in lending practices fizzled Thursday.
A bill that would have cracked down on state-licensed brokers who put borrowers into loans they couldn't afford was one of two foreclosure-related bills vetoed by Gov. Arnold Schwarzenegger.
The bill, AB 1830, by Assemblyman Ted Lieu (D-Torrance), was the most far-reaching of more than a dozen introduced by California lawmakers in January as residential foreclosures rose and the subprime mortgage crisis began to ravage California's economy.
The number of foreclosures in the state jumped 137% to 590,000 in the 12 months through August, according to ForeclosureRadar of Discovery Bay, Calif.
The motives of Lieu's bill "are to be lauded," but it overreaches, Schwarzenegger said.
The governor said the proposal would put state-regulated mortgage brokers at a competitive disadvantage against other brokers handling federally regulated mortgages.
The proposed restrictions would not have covered state and federally chartered banks, such as Countrywide or Wells Fargo, that also offer mortgages but do not use brokers.
Lieu called the veto a loss for homeowners. "Wall Street won and Main Street lost today when the governor vetoed AB 1830, a comprehensive, bipartisan, subprime mortgage reform bill that would have fixed a dysfunctional system."
Schwarzenegger administration officials, agreeing with arguments put forth by the California Assn. of Realtors, complained that Lieu's bill, while well-intentioned, could have made it hard for some buyers to get loans once the current credit drought ends.
Schwarzenegger also criticized the bill for allowing homeowners to collect attorneys' fees from successful lawsuits alleging broker misconduct. Such awards "will likely lead to increased litigation," he said.
Lieu's bill was supported by consumer groups and opposed by real estate and mortgage brokers. Other financial groups, including bankers and credit unions, dropped their opposition during earlier negotiations.
Even though the bill was watered down by the Legislature, Lieu said it would have been one of the toughest state laws in the nation. He said it would have strengthened regulation of the state's approximately 35,000 mortgage brokers, who arrange loans for home buyers.
