Loans on properties in states with tough legislation before the foreclosure crisis are of better quality and performing better. Among states to adopt tougher legislation since the crisis began are New York, Delaware and Rhode Island. But Arizona, on the other hand, recently repealed foreclosure legislation.
States that adopted tough anti-predatory lending laws have lower delinquency and foreclosure rates than states without such laws, according to State Anti-Predatory Lending Laws: Impacts and Federal Preemption, a recent study from the University of North Carolina's Center for Community Capital. As of June 2008, foreclosures were 12 percent higher in states without the laws.
In addition, states with stiffer laws had higher credit scores, lower debt-to-income ratios and lower loan-to-values. The group claims that after the federal government exempted national banks from state regulations, loan risk increased.
"From 2004 to 2007, national banks dramatically increased their share of the subprime lending market," the report indicated. "The biggest jump (from 9 percent to 20 percent) occurred in those states where national banks had been subject to stricter state laws until 2004 but, after that date, gained a competitive advantage against other lenders who remained subject to higher state standards."
House Bill 232 was signed by Delaware Gov. Jack Markell in October, a press release said. The legislation subjects loan modification companies to the Mortgage Rescue Fraud Protection Act -- which doesn't allow "thousands of dollars in up-front fees."
In Maryland, Gov. Martin O'Malley is considering legislation that would mandate mediation before filing foreclosure. O'Malley reportedly made the remarks at an event promoting Pro Bono counseling services to delinquent borrowers who face foreclosure.
"Over 9,000 foreclosure actions have been filed in Maryland in just the first quarter of 2009," the governor said in a statement. "To date, more than 900 attorneys have been trained in the program."
New York Gov. David A. Paterson signed into law on Dec. 15 Governor's Program Bill No. 46. The new legislation requires 90-day pre-foreclosure notices and mandatory settlement conferences. It also enables tenants in foreclosed properties to stay in their properties for the longer of 90 days or the lease term.
Lenders will be required to use third-party mediation before foreclosing on owner-occupied properties in Cranston, R.I., the Providence Journal reported last month. In addition, the approved measures require lenders to notify tenants in investor properties before they foreclose. The measures were vetoed by Cranston Mayor Allan W. Fung then overridden by the city council.
Prior to the Cranston actions, the state of Rhode Island passed legislation requiring a 45-day notice by lenders before starting foreclosure proceedings.
The repeal of a law which prevented speculators from avoiding liability for deficiency balances on foreclosed properties was signed in November by Arizona Gov. Jan Brewer. The Arizona Bankers Association faced off with the Arizona Association of Realtors -- who claimed second-home and family purchases were impacted.