Mortgages: hazard insurance proceeds.

Assembly Member Harabedian's mortgage insurance reform measure requires financial institutions to pay 2% annual interest on hazard insurance proceeds held in loss draft accounts for property rebuilding or repairs. The legislation applies to loans secured by one- to four-family residences in California, with interest accruing annually or upon account termination.

The bill permits financial institutions to deposit these insurance proceeds in interest-bearing accounts at federally insured depositories, federal home loan banks, federal reserve banks, or similar government-sponsored enterprises. Financial institutions cannot impose fees or charges that would reduce the effective interest rate below 2% per annum. The provisions exclude hazard insurance proceeds that regulatory authorities require non-bank institutions to place in non-interest-bearing demand trust accounts.

For existing loss draft accounts, interest accrual begins upon the bill's immediate enactment as an urgency statute. The measure amends the California Residential Mortgage Lending Act to align trust account requirements with these new interest payment obligations while maintaining existing protections that prevent commingling of funds and ensure proper account management.