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States Boost Lending Oversight

Recent state mortgage legislation

July 22, 2008


photo of Patrick Crowley

Mortgage professionals in Pennsylvania, Alaska, Indiana, New York and Arizona now face new laws regarding licensing, background checks and lending practices.

In Pennsylvania, Gov. Ed Rendell has signed five bills that are designed to "protect homebuyers, strengthen oversight of the mortgage industry and end key lending practices that leave homeowners vulnerable to foreclosure," Rendell's office said in a written statement.

According to Rendell's office, the laws require loan brokers to be licensed and allow the state Department of Banking to "more quickly inform the public about enforcement activities against mortgage companies."

"Until now, Pennsylvania law actually prohibited the [state] from telling the public about enforcement actions, fines and penalties" against brokers.

Pennsylvania's new laws also restrict payment penalties, increase fines for misconduct by real estate appraisers and require mortgage companies to notify the state when they intend to foreclosure on a piece of real estate.

Alaska was the last state in the nation not to license and regulate mortgage lending. But that changed July 1 when a new law took effect.

Under the legislation, which the Alaska legislature actually passed last summer, mortgage brokers, lenders and originators will be regulated, according to a statement from the Alaska Department of Commerce.

Prior to the law the state had no authority to investigate complaints, Rep. Bob Lynn, the bill's primary sponsor, said in a statement.

Lynn said the legislature and regulators worked closely with the Alaska Mortgage Bankers Association and the Alaska Association of Mortgage Brokers on the bill.

The legislation requires continuing education and originators must pass a test to receive a license. The law also sets advertising standards and allows the state to conduct criminal background checks as part of the licensing process for mortgage brokerage owners and loan originators.

The bill "will grant the [state] enough licensing and regulatory authority to begin addressing the growing number of complaints from Alaska's homebuyers," Lynn said.

A New York law that is expected to be signed into law will establish the crime of residential mortgage fraud while "providing assistance to current and future homeowners by modifying the foreclosure process, enacting a subprime mortgage lending statute, setting standards and limits for home loans and requiring the registration of loan providers," said the state lawmaker who sponsored the legislation.

"By tackling the fallout of the subprime crisis and enacting statues that prevent the types of predatory lending that has created this situation, New York is facing the crisis head-on and taking a lead in protecting working families," Rep. Darryl Towns of Brooklyn said in a statement.

Under the law, borrowers behind on payments must be receive a 90-day pre-foreclosure notice and advise them help is available. The law also requires registration of loan servicers; sets standards and limitations for home loans that "prohibits lenders or brokers from improperly influencing the outcome of a real estate appraisal"; makes mortgage fraud a crime; and prohibits "unscrupulous rescue scams" with regulations on "distressed property consulting contracts."

In 2006, more than 50,000 New York households fell into foreclosure, Towns said.

In Arizona, Gov. Janet Napolitano has signed a law that requires the state's estimated 10,000 loan originators to attend mandatory education courses, pass a criminal background check and pass a test administered by the Arizona Department of Financial Institutions.

The Arizona Association of Mortgage Brokers said it supports the bill and has been working on a "loan officer licensing bill" since 1995.

"With the signing of this bill, we're restoring confidence in the industry," Jody Davis, chairman of the association's Legislative Committee and president of Hacienda Mortgage in Scottsdale, said in a statement. "This bill will weed out the bad apples and make it unlikely that they'll mislead borrowers in Arizona again.

Patrick Crowley is a feature journalist and blogger for MortgageDaily.com. He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: [email protected]

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