Gov. Arnold Schwarzenegger vetoed a proposal Thursday that would have imposed tough restrictions on mortgage brokers, such as banning exotic loans to risky borrowers that cause balances to grow rather than shrink over time.

The Republican governor's veto of Assembly Bill 1830 blocked what consumer groups considered the most significant housing-related proposal on his desk.

It was one of numerous bills this session that responded to California's battered housing market, whose problems have been partly blamed on irresponsible lending practices.

Schwarzenegger, in his veto message, said AB 1830 had laudable goals but that it "overreaches and may have unintended consequences."

The bill by Assemblyman Ted Lieu, D-Torrance, would have specified that mortgage brokers have a "fiduciary duty" to borrowers, exposing brokers to greater liability for violating that duty. Consumer groups said that was important as an enforcement tool.

AB 1830 would have prohibited brokers from steering borrowers toward higher-risk loans than they would qualify for based on their income and credit. It would have curtailed incentives tied to riskier loan products and capped prepayment penalties.

Read the full story at sacbee.com.