The Seven Samurai Deadly Sins New Mortgage Laws

I think one issue is that people will bend over backwards to protect their home, but folks are less likely to eat beans and rice to pay for something that is just an investment. So investment properties can be riskier.

The new fraud statute broadly applies to would-be borrowers, but the effect should be more sweeping on realtors. It is now a crime, punishable by imprisonment, to make any “misstatement, misrepresentation, or omission during the mortgage lending process with the intention that it be relied on by a mortgage lender, borrower, or any other party to the mortgage lending process”
But the new statute also makes it a specific crime, punishable by imprisonment, to “deliberately use or facilitate” any such misstatement, misrepresentation, or omission. So advising clients to use the many little “tricks” to get approved for a loan, such as taking a gift from parents for the down payment and declining to disclose the fact that it was a gift and not savings, is now a pretty serious crime.

why is it superior from a loan issuer’s standpoint for a condo or property to be used as a primary residence instead of a rental?

It doesn’t matter if loan originators think one or the other is superior, if you are lying on your loan application in order to get a lower interest rate rather than paying the rate appropriate for investment property, as the editor says, that constitutes fraud.
Other socketsite posters can comment knowledgeably on whether or not a loan for an investment property can be sold to the government-sponsored enterprises; if they can’t, then that would be a difference from the loan originator’s standpoint and itself worth charging the would-be landlord a higher rate on the mortgage.

Two thirds of all SF realtors would be in jail had these ‘common sense’ rules be in place – and been enforced – in the period between 2004 and 2007 with.

Any misrepresentation on a loan application would have to be knowing and material at the time it was made. So if you got a mortgage for a condo with the representation that it was going to be your home and a year or two later your life circumstances changed and you decided to move out and rent the condo, there is no way you could be successfully prosectuted for fraud.
Of course, if you rented the condo out from day one, that would be a different story.

Horse: Long Gone.
Barn Door: Now Firmly Closed.
Hope the legislature doesn’t break their arms patting themselves on the back. How long has everyone known this was a problem?
This is a great example of how government facilitates this type of fraud because their campaign contributors are all making money from the status quo and so no one wants tor rock the boat until everyone has safely jumped ship. It took them a year AFTER the meltdown to pass these laws?
It’s only because the originators and appraisers are already scrutinizing more closely (making fraud nearly impossible to profit from) or this would never have passed even now.

I’m with tipster.

Robust markets are always worthwhile. These rules did not prevent this bubble, but they will likely be useful the next time around. With bubbles there is always a next time even after a decade or more of recovery. Rules can always be turned back or thrown out, but it took a very long time to remove all of the safeguards put in place after the Great Depression. With some effort we might be able to keep the market functional for another fifty years or more before corruption again grows beyond all reasonable bounds.
As for the government facilitating fraud. That may be true, but it isn’t necessarily relevant. It is also true that with improved disclosure through XBRL and such it may not be possible to hide this kind of extensive fraud for this long the next time there is a big bubble.

It wasn’t a year after the meltdown – it’s been two and a half years since it started (it really got going in March / April of 2007).
Legislating at the speed of … something slower than light?

AB 1160, by Assemblyman Paul Fong (D-Cupertino), requires that mortgage loan documents be written in the same language the verbal negotiations were conducted in.
Um, no. How about your buying a house in America, learn to read English.

Realtors weren’t, and aren’t a party to the mortgage lending process. They’re not allowed.
from http://www.dre.ca.gov/faq_mlb.html:
California does not issue a “mortgage broker” license. A majority of those engaged in mortgage loan brokering do so with a real estate broker license. To the surprise of some, the license that allows the listing and sale of real property (the traditional activities associated with a real estate broker license) is the same license that allows the solicitation of borrowers or lenders, the negotiation of loans secured by real property and the collection of payments on notes secured by real property. For further details concerning the definition of licensed activity, review Business and Professions Code Sections 10130 and 10131.
How about your buying a house in America, learn to read English.
Speaking as a onetime immigrant (to Japan) Immigrants don’t matter, as long as their children are streamlined into American culture (such as it is).

…and now the law forbids it

You may not like Assemblyman Paul Fong’s bill now, but when prices really start to freefall, you’ll really like it when the Hong Kong and PRC investors stream in to buy up all of the excess property and they can close their deals quickly because the mortgage loan documents are in their native language.
Deals they’ll only feel comfortable doing if they know they aren’t getting rooked by fly-by-night San Francisco mortgage brokers.
of course, I’m not a homeowner now, but hopefully by that point I will be and then it’ll be in my best interest for the giant outside pool of money to flow this way and support residential home prices, pay property taxes, etc.

The new “language same as in verbal negotiations” law is asinine. I understand that some shysters pitched non-English speakers on a fairly tale deal that was far different from that represented in the English-language contracts. But just go after the crooks. No lender is going to vary from the English documents that have been vetted to death by an army of lawyers and conform with the requirements of the secondary markets. So this means that all “verbal negotiations” must be done in English. It will be that much harder for non-English speakers to participate in the process at all.

Two thirds of all SF realtors would be in jail had these ‘common sense’ rules be in place – and been enforced – in the period between 2004 and 2007

Between the periods you mention, if these laws were in place, it seems to me fewer people would have gotten mortgages partially because mortgage brokers wouldn’t have been playing nearly as fast and loose. And there would have been fewer people slinging funky mortgages and selling overpriced real estate which required them.
The ability to finance real estate would have been, in aggregate, lower, and therefore the prices of real estate in San Francisco wouldn’t have increased as quickly. The lower rate of increase would have in turn swept up fewer people in what became a speculative bubble in S.F. real estate (“buy now or be priced out of the market forever!”, as real estate agents were so fond of saying), and the bubble wouldn’t have expanded quite as fast as it in fact did.
So there would probably have been fewer real estate agents and mortgage brokers out there trying to get a piece of action; fewer out there dancing while the music was playing and hoping that they’d have a chair when the music stopped, which means there wouldn’t have been all that competition to beat out the next broker in terms of sales production and deal closing and hence pressure to bend or break the law in order to stop a deal from going out the door to a competitor.
When you’re on the left side of the inflection point, one or two reasonably visible prosecutions would gone a long way, and the snowball effect would have been stopped short.