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States Target Brokers

States Target Brokers

Recent legislative and regulatory activity

November 16, 2007


photo of Patrick Crowley
Mortgage lenders in Massachusetts have been granted more time and further clarification on a controversial new broker regulation that was supposed to take effect yesterday. But there was no reprieve for brokers in Colorado, Illinois or Michigan. Ohio mortgage lenders, meanwhile, have raised the ire of Ohio’s chief attorney.

Objections raised by the mortgage industry have convinced Massachusetts Attorney General Martha Coakley to delay implementing new regulations.

The regulations were to take effect Nov. 15, but Coakley has moved back the start date to Jan. 2. In a statement, Coakley said she wanted to give lenders and brokers more time to comply as well as make the new regulations more understandable.

“Certain lenders” have misunderstood a regulation designed to prohibit conflicts of interest in how brokers are paid,” Coakley said. “Some brokers believe that under the new rules there is a “blanket prohibition on paying broker costs outside of points or fees paid at closing.”

“That is inaccurate,” Coakley said. “Not all such compensation poses a conflict between the broker’s financial interests of the client.”

Coakley said a clarification will be issued within the next few days that will “assuage some of the concerns that have been brought to our office’s attention.”

Coakley said she also wants to give ample time for loans already in the pipeline to be completed.

“I do not want to interfere with those loans, assuming the borrowers wish to proceed, delay those transactions, or even risk loss of buyer deposits if a lender failed to honor its loan commitment,” she said.

In Illinois, Gov. Rod Blagojevich has signed what he calls “an anti-predatory lending law” that “toughens standards that mortgage brokers must meet before completing loans for their customers.”

Among other provisions, the bill requires that homebuyers in areas of Chicago hit hard by foreclosures and fraud undergo counseling prior to closing a loan.

“Homeowners will have access to one-on-one loan counseling and workshops about refinancing, foreclosure prevention, legal rights, loss mitigation and credit counseling,” Blagojevich said in a statement.

Statewide, brokers will be limited in the types of loans they can offer certain buyers “by making sure that the proposed loan best meets the financial need of the potential homeowners,” he said.

Brokers must verify that a borrower can repay a loan; fully disclose all material facts about a loan; disclose how much they will be paid; and use “apples-to-apples comparisons on monthly payments,” Blagojevich said.

“Mortgage brokers will be held to a higher standard than they have in the past,” he said.

In Colorado, the Department of Regulatory Agencies has adopted an emergency rule requiring mortgage brokers to provide borrowers with disclosures within three business days of receiving a loan application or any money from the borrower.

The disclosures must provide the annual percentage rate; finance charge; amount financed; total amount of payments; third party costs; term of a lock-in agreement; transfer of documents; and the amount of the borrower’s money held in a trust account.

The Michigan state Senate has unanimously passed legislation that will require loan officers to register with the state, undergo background checks and take continuing education classes.

“Citizens all across our country have experienced problems caused by some of the less than respectable individuals in the mortgage industry,” said Republican Sen. Tony Stamas said in a statement. “While most do a good job, we are taking action to help ensure every Michigan resident that their mortgage loan officer is qualified.”

The bill also prohibits brokers or lender from paying commissions to unregistered loan officers and specifies that loan offices cannot use false advertising or misrepresentations in transactions with borrowers.

The bill now goes on to the Michigan House.

Meanwhile, Ohio Attorney General Marc Dann is issuing subpoenas as part of a state and federal problem into foreclosure rescue schemes offered by subprime lenders.

In a statement Dann did not identify the targets of the subpoenas, which are being jointly issued by his office and the Ohio Department of Commerce.

But he did say the “investigation involves possible violations of the anti-trust laws, civil rights statutes and consumer sales practices act.”

“The information we gather may enable us to use our common law authority to investigate and prosecute civil fraud,” Dann said.

Last month Gov. Ted Strickland asked the lenders to enter an agreement to help struggling homeowners stay in their homes through various measures. But many subprime companies have not signed the compact, Dann said.

“Their refusal to sign the compact speaks volumes about their crass disregard for the people they have hurt and the communities they have destroyed house by house, street by street, block by block,” he said.


Patrick Crowley is a feature journalist and blogger for He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at:

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