|State governments, largely reactionary by nature, are enacting or close to passing a rash of new laws inspired by the fallout of the subprime mortgage market.
The last round of legislation came in the wake of mortgage fraud that was sweeping in industry over the last few years. Now, legislatures are moving to tighten regulations on the mortgage industry as foreclosures have hit record highs across the country, job losses have mounted and concerns have grown about the ease that unqualified buyers are getting loans.
In Pennsylvania, banking regulators are pushing lawmakers to pass laws designed to “protect consumers from abusive mortgage lending,” the state’s top financial regulator said in a statement.
Acting Secretary of Banking Steve Kaplan wants laws that would allow his department to strengthen license and education requirements, move more quickly in notifying the public about fines and other actions against companies and put more borrowers under the state’s interest laws.
“Borrowers have been getting loans they can’t afford, and on terms they don’t fully understand,” Kaplan said in the statement. “Now, many of them are struggling to keep their homes.
“Pennsylvania licenses real estate professionals, securities dealers and even barbers, but not the person brokering what may be the largest financial transaction of your life,” he said. “We must join the 30 other states that require mortgage professionals to be tested and licensed.”
North Carolina lawmakers have passed a law regulating rate spread home loans and broadening the duties of mortgage brokers.
Rate spreads are defined as 3% on first mortgages and 5% on second mortgages and a spread of 1.75% for firsts and 3.75% for seconds when compared to the “conventional mortgage rate” for fixed-rate first mortgages published by the Fed, according to an analysis of the law by Nelson Mullins, a North Carolina law firm.
The law also eliminates prepayment fees and penalties on the loans and stipulates that a lender must reasonably believe the borrower has the ability to repay the loan.
New duties for brokers under the law include notifying lenders about the specifics of loans securing the same piece of property; providing more information to the borrower, including the expected commission on the transaction; and a prohibition on lending without regard to repayment ability.
North Carolina does not make a lender liable for a broker’s actions, according to Nelson Mullins.
In the first half of this year the state’s foreclosure filings nearly doubled to 17,248, according to a study by RealtyTrac cited in the analysis.
A new Arizona mortgage law that went into effect Sept. 20. makes mortgage fraud a felony, according to a statement from Lotstein Buckman.
New Mexico has formed a task force on subprime lending. According to an executive order signed by Gov. Bill Richardson — a Democrat running for president — the task force will focus on the ability of the borrower to repay the loan, excessive fees, prepayment penalties and the terms of subprime loans.
The task force is due to report its findings by Oct. 31.
“Although subprime mortgage lending may have contributed to increased home ownership rates in recent years, there is widespread concern that subprime mortgage lending … have enabled unsound lending practices,” Richardson said in his executive order.
And finally in Michigan, a law designed to assist members of the military includes a provision dealing with foreclosures.
Under the law, which was introduced in early September, lenders could not foreclose on the property of military personnel for non-payment while they are serving and for six months after they return from active duty.
“When veterans come home and begin rebuilding their lives, it is critical that we give them the tools and support necessary to get the job done,” Sen. Dennis Olshove, a Democrat, said in a statement.