Hammered by a housing downturn that contributed to the state's budget crisis, California is boosting protections for home buyers and punishing brokers who mislead borrowers and steer them into costly loans.
Statutes requiring individual loan officers to register with the state, making it a crime to give inaccurate information during the mortgage-application process and ensuring that banks inform potential borrowers of all their loan products are among hundreds of California laws that take effect Friday.
Other new laws will ban restaurants from cooking with trans fats, honor gay rights activist Harvey Milk with a day of recognition, make it easier for celebrities to sue the media for invasion of privacy, ban the practice of cutting cow tails and establish a commission to promote blueberries.
The most high-profile legislation in a year dominated by budget cuts was a package of bills that seeks to change how the state uses water and manages the Sacramento-San Joaquin Delta, the estuary that funnels fresh water from north to south.
Part of that package is an $11.1 billion water bond that will appear on the November ballot. Lawmakers filled the bond with special-interest earmarks to win passage, a potential weak point as they try to persuade voters to pass it.
The mortgage bills crack down on what critics say was irresponsible subprime lending that left California among the states hardest hit by the meltdown in the housing market. That has led to higher unemployment and lower tax revenue, adding to budget crises for local and state governments.
"It was certainly in response to what we're seeing across the state with the increase in foreclosures and the economic downturn," said Dustin Hobbs, spokesman at the California Mortgage Bankers Association. "I think lawmakers were trying to make sure we didn't see it in future years."
A law by Assemblyman Ted Lieu, D-Torrance, will prohibit lenders from steering borrowers who qualify for fixed-rate loans into riskier higher-priced loans.
Mortgage brokers and banks will be required to notify clients about all the loans they offer. Loans that get larger the longer a borrower holds them _ known as negative amortization loans _ will be banned in most cases. Caps also will be placed on the penalties loan providers levy when mortgage holders pay off their loans early.
A law by Sen. Fran Pavley, D-Agoura Hills, will make it a crime for mortgage brokers to deliberately misrepresent or omit information to get loans for borrowers. Potential penalties include up to a year in prison.
"If all states had stronger mortgage laws seven years ago, I think this whole crisis could have been mitigated," Lieu said. "Part of the reason it's so important for this kind of reform law is there is a huge knowledge imbalance between what banks know and what you the consumer knows."
Lawmakers also boosted protections for Californians who already own a home. A law by Mike Feuer, D-Los Angeles, seeks to protect the growing number of senior citizens pursuing reverse mortgages. It will require lenders to give customers a list of independent counseling agencies and a checklist about the risks and alternatives to reverse mortgages, a special type of home loan that converts a portion of a home's equity into cash.
Here are some of the other laws that take effect with the new year:
GAY RIGHTS _ Gov. Arnold Schwarzenegger reversed himself this year by signing into law a bill honoring slain gay rights activist Harvey Milk with a special day of recognition in California. Milk is just the second person in state history to gain such a designation, behind conservationist John Muir. Each May 22 _ Milk's birthday _ will be "Harvey Milk Day." The Republican governor vetoed similar legislation in 2008.
PAPARAZZI _ Schwarzenegger, a movie star himself, signed an anti-paparazzi bill making it easier to sue media outlets that use photographs taken when celebrities have a reasonable expectation of privacy, such as when they are in their backyard. The change updates a decade-old law that allows fines against paparazzi who illegally or offensively take photos or recordings. It allows lawsuits against media outlets that pay for and make first use of material they knew was improperly obtained.
TRANS-FAT BAN _ California becomes the first state in the country to ban restaurants, bakeries and other retail food establishments from using oil, margarine and shortening containing trans fats. Schwarzenegger, a former bodybuilder who regularly talks about healthy eating and exercise, signed the legislation by Assemblyman Tony Mendoza, D-Artesia, in 2008. It did not take effect until 2010 to give outlets time to convert their cooking processes. The law affects oil, shortening and margarine used in spreads or for frying. Restaurants can continue using trans fats to deep-fry yeast dough and in cake batter until Jan. 1, 2011. The legislation follows moves by several major cities and fast-food chains to ban the substance.
LEAD-FREE FAUCETS _ The maximum amount of lead allowed in faucets and replacement plumbing fixtures will drop dramatically, from the current 8 percent of total material to 0.25 percent. The standard applies to pipes, pipe fittings, plumbing fittings and fixtures that become wet.
CAR LIENS _ California car buyers will get more protection under a law by Sen. Elaine Corbett, D-San Leandro. It requires dealers to prove they have paid off vehicle liens before trading or selling them. The bill was in response to a growing problem nationwide triggered by the recession: Dealers often promise to pay off outstanding loans when car buyers still owe money on their trade-in vehicle. But if the dealer goes out of business without paying off the loan, lenders can go after the previous owner or repossess the resold car from the new owner.
DOG FIGHTING _ Watching an illegal dogfight in California could cost spectators more jail time. The new law by Assemblyman Pedro Nava, D-Santa Barbara, increases jail time from a maximum of six months to one year. Fines are increased from $1,000 to $5,000.
BLUEBERRY COMMISSION _ Assemblywoman Fiona Ma, D-San Francisco, is author of a new law that establishes a commission to promote California's growing blueberry industry. The commission's $1.2 million annual budget will come from a surcharge on blueberries. Schwarzenegger over the summer chastised lawmakers for promoting a new commission while the state was mired in a budget deficit, but the governor later reversed himself and signed the bill.
COWS TAILS _ California becomes the first state banning the painful practice of tail docking. Dairy officials say the practice of cutting off cow tails to prevent them from slinging manure is practiced on fewer than 15 percent of the state's 1.5 million dairy cows. Schwarzenegger initially mocked lawmakers for seeking the law, but the governor signed it after lawmakers agreed to resolve the state's budget shortfall.
Associated Press Writer Juliet Williams contributed to this report.