State, Federal Legislative Activity

Michigan lawmakers are considering legislation that would require background checks for loan officers, prohibit brokers and lenders from paying commissions to unregistered officers and establishing education and application requirements for loan officers.

Industry groups such as the Michigan Mortgage Brokers Association helped draft the law, according to a statement from bill sponsor Sen. Randy Richardville.

“The nationwide foreclosure rate is skyrocketing and Michigan continues to be in the top 10 states,” Richardville said in a statement. “Requiring loan officers to become registered is a common sense approach to a real problem.”

In Massachusetts Attorney General Martha Coakley has issued regulations designed to “ban unfair or deceptive lending practices,” she said in a statement.

The Massachusetts Consumer Protection Act prohibits brokers from arranging or processing loans that are not in the borrower’s interest or if their financial interest conflicts with the borrower’s interest and prohibits lenders from discriminating between borrowers and from steering borrowers to loans costlier than what the borrower qualifies for.

“These regulations will give us the ability to more easily bring cases against unscrupulous lenders,” she said, “and should serve as a deterrent for brokers and lenders not to engage in unfair and deceptive practices.”

Brokers and lenders are no longer permitted from making a loan if they do not have a reasonable belief that the borrower is able to repay the loan. Other states have used a similar provision to target property flipping.

In addition, the use of “stated income” or “no documentation” loans has been restricted and lenders and brokers are prohibited from “steering borrowers” to more costly loan products, Coakley said.

Originators must comply with the new regulations by Nov. 15, with the exception of a disclosure provision, which must be implemented by Jan. 2, 2008.

Colorado regulators have also issued new rules regarding mortgage loans.

The Colorado State Banking Board is ordering lenders to provide more information to borrowers about nontraditional loans such as subprime loans, including the costs, risks and other features of the loans.

The state is also more stringently scrutinizing advertising and marketing. Lenders must not make any sort of predictions about the future of interest rates or use ads that obscure a loan’s risks, particularly adjustable rate loans.

And New Jersey lawmakers are set to take up bills — one in the House, one in the Senate — that would it tougher to become a mortgage broker or mortgage solicitor.

Brokers and solicitors would be subject to background checks and have to undergo training on the legal, ethical and business aspects of the industry, according to a copy of the legislation.

Congressman Barney Frank, a Massachusetts Democrat and the chairman of the House Financial Services Committee, has issued a sweeping 66-page bill mortgage reform bill.

Frank may hold a hearing on the bill as early as Wednesday. Kurt Pfotenhauer, senior vice president of the Mortgage Bankers Association, is poised to testify and push the association’s long held stand for a uniform national standard on mortgage lending regulations.

While Frank’s bill addresses the industry on a national scope it also paves the way for more state regulation.

“Today’s mortgage market is a national market, and therefore we feel strongly that any federal legislation should be written so that borrowers in all 50 states have the same protections, and lenders operating within the 50 states ought to be held to the same standard in every state,” Pfotenhauer said in a statement.

“Without a uniform national standard, this legislation could only serve to foster more confusion in the marketplace for borrowers and lenders alike,” he said.

Related:

Bill Proposes Elimination of YSPs
Provisions of a new predatory lending bill introduced by Democrats yesterday would eliminate yield spread premiums, reduce the threshold on loans considered to be high cost and force servicers to honor existing leases on properties they have foreclosed on.

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: PatCrowley@MortgageDaily.com