New regulations passed by state legislators and federal housing leaders will discourage mortgage fraud and make home buying easier, but the laws could also lead to higher borrowing costs in the long run, some industry experts believe.

New state and federal laws that went into effect Jan. 1 require lenders to supply easy-toread estimates without hidden costs and establish limits so that mortgage brokers can’t steer borrowers into high-risk, highinterest loans.

The laws also regulate prepayment penalties and protect senior citizens who are considering a reverse mortgage.

One of the bills, introduced by state Sen. Fran Pavley (DSanta Monica), makes it illegal for California mortgage brokers and lenders to mislead customers on their loan applications.

“It’s critically important. The crash of the housing market and impact on the local economy when people lose their homes affects all of us,” Pavley said.

Pavley represents the 23rd District, which includes Agoura Hills, Calabasas, Hidden Hills, Oxnard and Westlake Village.

Statistics show the Los Angeles region ranked No. 1 in mortgage complaints last year, but, Pavley said, “We had nothing in the law directly related to mortgage fraud.”

Under Pavley’s Senate Bill 239, a person accused of mortgage fraud will be charged with felony grand theft. Offenders could be punished with up to a year in jail.

The new law will also make it easier for investigators to obtain documents that are relevant to mortgage fraud, Pavley said. Her bill was sponsored by the California District Attorneys Association.

State Sen. Tony Strickland, (R-Simi Valley) also supports tighter regulations.

“We need to do whatever we can to fight against mortgage fraud because this really hurts our economy,” Strickland said. “It cost a lot of jobs. People lost their homes and their retirement because of it, so we must make sure this doesn’t happen again.”

James Wick, a Moorpark resident and loan officer for Bank of America home loans, said additional regulations from the U.S. Department of Housing and Urban Development will also make mortgage shopping easier and safer for consumers.

One law changes the way settlement charges are disclosed to borrowers and provides a better understanding of the closing costs associated with loan transactions.

Lenders must now supply an easy-to-read good-faith estimate without any hidden costs, Wick said.

If costs increase by more than 10 percent from the quoted amount without good reason, the lender or broker must pay the difference, he said.

In the previous real estate climate, some brokers and lenders weren’t always truthful about closing costs.

“People purposely underestimated some charges to lure consumers in,” Wick said.

New laws also encourage borrowers to shop around for escrow and title services.

“Before, the practice was always that Realtors would recommend and direct that business to their favorite companies,” Wick said.

Wick has been in the mortgage lending industry for 25 years. He was an independent broker until March 2009.

He said borrowers should still beware and understand all documents before they sign.

“The industry kind of flushed itself out, so a lot of bad people are gone, but there’s always going to be bad apples,” Wick said.

Jeanet Moltke is a Calabasas resident and a Realtor with Coldwell Banker who has been involved in real estate for more than 20 years. She said the new laws should have been established years ago to prevent fraud.

But as Moltke pointed out, “An unintended effect of the new regulations is that they will create more work for lenders, so loans will cost more for the consumer.”

Moorpark resident Thomas Pflaumer, a loan officer with American Family Funding, said the new laws are welcome because they establish guidelines to keep brokers in check.

But mortage fraud wasn’t the only cause of the real estate crash that began in 2008, Moltke said.

“Brokers weren’t alone; there was the supply and the demand. The bubble burst because home values declined and people had taken all the equity out of it.”