Mortgage loans are being marketed, explained, and negotiated in languages other than English. Yet the final contract signed by buyers is only in English. Documents are signed at the closing with a pile of English-only documents that many limited- or non-English speaking borrowers do not understand. Many people believe that borrowers who are not fluent in English are taken advantage of by lenders or brokers. For example, changing the financial terms in the signed document to something other than what the borrowers were initially promised.

In California, data from the last census shows that 42.3 percent of residents speak a language other than English at home. New legislation for limited-English speakers purchasing real estate, Assembly Bill 512, will require translation of select mortgage documents into five additional languages.

Background on the Mortgage Crisis
The language issue is taking place against the larger economic background - that of the crumbling housing market. The mortgage crisis is a bigger issue than can be covered in the Global Communicator, but a quick look at the background can help paint an overall picture.

For the past few years, loans have been designed to allow initial periods of very low payments followed by adjustment. The use of adjustable rate loans, loans with a very low introductory interest rate, and/or those with little or no money down, may have been a reasonable decision for a borrower. Government and industry experts calling for market reform state that in recent years mortgages were approved based solely on a person's ability to repay the mortgage during this low introductory period. Property could be purchased and mortgages kept up with small down payments and low monthly payments. Sub-prime loans, which provide credit to borrowers who have flawed credit records, and stated income loans, were also more readily available. In markets with low affordability, including most of California, these products were effective in allowing many segments of the population to gain entry into the real estate market.

The recent history of the housing market shows the risks associated with these types of loans. Trillions of dollars of adjustable-rate mortgages will have their payments reset in 2008, or have been reset already. The impact of mortgage payment reset will affect California's housing market and economy as a whole for years to come. According to RealtyTrac, in January 2008 foreclosures were up over 454% compared to the same period in 2007. In February 2008, California had over 53,000 foreclosure filings, the most of any state.

To help address these issues, the California Assembly has authored and introduced several bills, including AB 512, as part of a mortgage crisis relief and reform package.

Understanding Codes, Laws, Numbers and Beyond

Current California law does not require mortgage lenders to include translations of contract documents if a real estate loan is negotiated in a foreign language. AB 512 amends California Civil Code Section 1632, which requires businesses that primarily negotiate certain consumer contracts in Spanish, Chinese, Tagalog, Vietnamese, or Korean provide the consumer with a written translation of the contract in that language prior to the execution of the agreement. Contracts covered by this requirement include automobile sales and leases, consumer credit agreements, retail installment contracts, rental agreements, certain types of loans, and legal service contracts. Secured home loans from state and national banks, credits unions, thrifts, and residential mortgage banks have been excluded. This bill adds loans from residential mortgage banks to the list of consumer contracts that must be translated.

It requires that, beginning in April 2009, consumers be given a translation of specified loan terms on forms developed for that purpose by the Secretary of the Business, Transportation and Housing Agency. The bill is intended to provide an easy way for limited-English speakers to be informed of the essential terms of their mortgage transactions.

Understanding Limited English Proficiency Laws and Codes
Individuals who do not speak English as their primary language and who have a limited ability to read, speak, write, or understand English can be limited English proficient, or "LEP." These individuals may be entitled language assistance due to federal laws such as Title VI of the Civil Rights Act of 1964, and the Title VI regulations, prohibiting discrimination based on national origin, and Executive Order 13166 issued in 2000 entitled, "Improving Access to Services for Persons with Limited English Proficiency."

Many individual federal programs, states, and localities also have provisions requiring language services for LEP individuals. Mortgage companies are not required to adhere to the LEP regulations because they are not federally funded. An exception could be grants provided through Housing and Urban Development (HUD).

CA Assembly Bill 512 adds consumer real estate mortgage loans to the list of contracts subject to the translation requirements of CA Civil Code Section 1632. It requires the consumer to be provided with a summary term disclosure sheet in the language of the negotiation. Again, the existing California law does not require mortgage lenders to include translations of contract documents if a real estate loan is negotiated in a foreign language.

Tracking AB 512
AB 512 was introduced by Assembly Member Sally Lieber in February 2007. It passed the Assembly Judiciary Committee in May and then the Floor in June of that same year. At the time of publication, AB 512 had passed several committees in the Senate, was amended in June of 2008, and its hearing was postponed in the Senate Banking, Finance, and Insurance Committee.

Find out more
Global Communicator is currently tracking this Bill in LegisWeb. If you would like to be notified of updates as they become available, contact us. Or, for our short list of resources, access this issue's useful links.

Sources:
http://www.lep.gov
http://www.hud.gov