Gov. Arnold Schwarzenegger appears to have taken a bold step in finding a solution to one segment of the state's housing crisis. </p><p>Seeing that having thousands of vacant homes in Valley neighborhoods present too many issues to overlook, he moved forcefully Monday to get individuals into some of those homes.</p><p>He selected only the hardest hit areas of the mortgage meltdown, which clearly includes Merced, Stanislaus and San Joaquin counties. His program will make available $200 million in low interest rate loans so some of those homes can be purchased and occupied.</p><p>"No one single effort can solve our nationwide housing crisis," said the governor, "but together these measures make an important difference in California's neighborhoods."</p><p>It's too early to say if his move will have a significant impact, but it's not too soon to applaud his effort. Somebody had to do something; we're glad the governor finally did.</p><p>Now it's time for the Legislature to take similarly bold steps in curbing some of the most egregious abuses of the recently imploded real estate bubble. </p><p>The best way to do that will be to reconsider many of the changes originally proposed in Assembly Bill 1830. Unfortunately, those measures were either eliminated or neutered when the bill reached the state Senate's banking committee, causing consumer and watchdog groups to withdraw support.</p><p>The rationale was that AB 1830's measures would be redundant once the Federal Reserve enacted new rules.</p><p>The Senate's neutering of AB 1830 created a severe reaction in the Assembly. When a much milder package of Senate reforms went before an Assembly committee, they didn't receive a single vote.</p><p>This political tit-for-tat sidetracked any effort for reform. As a result, the whole issue was kicked up to the leadership, which is trying to assemble some sensible fixes.</p><p>Last week, the Federal Reserve released its new rules, several of which will help stem some of the worst abuses. The new rules require lenders who make higher-priced mortgage loans to verify income and assets (gone are "stated income," or liar loans) and to establish escrow accounts for taxes and insurance. They ban ads that say a rate or payment is "fixed" when it can change. But there's a major drawback: Some of these rules don't take effect until April 2010.</p><p>The bulk of irresponsible loans were made by state-chartered - not federally supervised - mortgage companies. This means there has been, and will be, an enormous hole in the regulatory net unless the state acts to close those holes. The Legislature's leaders must move beyond the "follow the Fed" approach and provide creative California solutions. </p><p>Specifically, they must:</p><p>Make it clear that lenders must truthfully assess a borrower's ability to repay over the entire term of the loan (not just the highest payment in the first seven years, as the new Fed rule requires).</p><p>Ban prepayment penalties outright. These penalties for paying off a loan early hinder refinancing, trapping borrowers in loans they cannot afford. While common with higher-cost loans, these penalties are rare among prime mortgage loans. The Fed's new rule only bans prepayment penalties in the first four years, still trapping borrowers for too long.</p><p>Ban broker commissions called "yield spread premiums" that create a financial incentive for brokers to steer borrowers to higher-interest loans that they are less likely to be able to repay. Brokers should be paid flat fees or fees based on the principal amount of the mortgage.</p><p>California should be a leader - not a follower of the Federal Reserve. If the Legislature must follow, it should follow the governor's lead in taking bold action and put together a strong package for a vote in August.