California Bankers Association President and CEO Kevin Gould is urging state lawmakers to hit pause and rethink parts of a recent consumer-protection package and a related budget change that he says are making it tougher for Californians to get a mortgage. He warns the squeeze could be sharpest on subordinate loans, the second mortgages and other junior liens often used for down payments, accessory dwelling units and rebuilding after disasters. His appeal is landing just as Sacramento weighs two emergency mortgage relief bills, AB 1842 and AB 1847.
As reported by Los Angeles Business First, the association says it has already floated "compromise" language on both measures. According to the outlet, CBA warned lawmakers that the current bill text could unintentionally choke off access to the subordinate financing that helps many buyers get into a first home or tap equity later. The group lays out its broader policy concerns in an explainer on its website, arguing lenders will be discouraged from making smaller, second-lien loans if the new rules stand; see California Bankers Association.
Industry critics point to a little-noticed provision tucked into a recent budget trailer bill that was intended to crack down on abusive "zombie" subordinate mortgages but, they say, was rushed and has created broad uncertainty about how these loans will be treated going forward, the trade magazine California Banker reports. That uncertainty, bankers argue, could shut down a common path into homeownership and stall small-scale projects such as backyard ADUs. The concern is amplified by California’s brutal affordability math: only about 18 percent of households could afford a median-priced single-family home in the fourth quarter of 2025, according to the California Association of Realtors, which is why second-lien financing remains such a big deal.
What the bills would do
AB 1842, the California Emergency Mortgage Relief Act, would allow homeowners to request up to 12 months of emergency-related forbearance during a governor-declared state of emergency and would explicitly authorize borrowers to bring a civil action to enforce the law, according to the bill text on Legislative Information. AB 1847 would expand wildfire-related forbearance from 12 months to 36 months for survivors of the Eaton and Palisades fires in Los Angeles County and would require servicers to offer repayment deferrals tacked on to the end of the loan term, along with added reporting and other consumer protections outlined by Legislative Information.
Why banks say it matters
The fight is unfolding against a backdrop of shrinking bank participation in the mortgage market. Federal Reserve Vice Chair for Supervision Michelle Bowman has noted that banks’ share of mortgage originations has dropped from roughly 60 percent in 2008 to about 35 percent in 2023, while their share of servicing has fallen from about 95 percent to roughly 45 percent over the same period, according to a speech transcript. Regulators are already weighing changes to nudge banks back into the business. Bankers argue that California’s move to add new enforcement layers on top of those national shifts risks pushing lenders even further away from smaller, riskier second-lien loans, leaving some would-be buyers and equity-strapped homeowners with fewer options, a case the association has stressed publicly.
Wildfire relief and the local fallout
Supporters of AB 1847 counter that the wildfire bill is aimed at a very specific crisis. Many homeowners hit by the January 2025 Eaton and Palisades fires in the Los Angeles area are still displaced or underinsured and could not realistically rebuild within the original 12-month forbearance window, according to reporting and testimony described in the Los Angeles Times. Assemblymember John Harabedian, who authored both bills, released a statement outlining the proposals and arguing that California needs a clear, statewide framework for disaster-related forbearance so families are not left scrambling after the next fire or flood (Harabedian’s office).
Legal stakes
The private right of action in AB 1842 is the flash point. The bill text explicitly lets borrowers sue servicers for violations, and banks warn that this could open the door to a wave of costly litigation. Gould told Los Angeles Business First that the added legal exposure might prompt lenders to scale back or stop making subordinate loans altogether rather than risk being hauled into court, a scenario he argues would hurt borrowers on the margins the most.
For now, both sides insist they are open to tweaks, and committee records show the bills are still being reshaped as they move through Sacramento. Lawmakers now have to thread the needle between tougher consumer protections and preserving the credit channels that help Californians buy, rebuild and improve homes. Several more hearings and amendments are expected in the coming weeks, according to committee records.
