On September 24, the Governor of California approved AB 3108 (the “Act”), amending the Financial Code and Penal Code to address mortgage fraud and consumer protections. The Act prohibits knowingly filing any document with a county recorder that contains material misstatements, misrepresentations or omissions. It expands the definition of mortgage fraud to include actions by mortgage brokers who knowingly allow borrowers to sign documents with misleading loan terms. Additionally, the Act mandates that mortgage brokers ensure borrowers can repay their loans based on their income and financial resources, other than the equity in their homes.

The Act also amends the Penal Code under Section 532f, specifying that mortgage fraud includes making deliberate misrepresentations during the mortgage lending process. It criminalizes instructing borrowers to sign personal loan documents under the guise of business loans. In addition, the Act introduces a consumer counseling notice requirement for loans covered under the Act. Specifically, this notice must inform borrowers that they could lose their homes if they fail to meet their loan obligations and advise them to consult with a qualified independent credit counselor.