New Rules to Protect Against Foreclosure
Pennsylvania homebuyers will benefit from new rules governing mortgage disclosures and practices, according to the state Department of Banking. The rules are contained in a new regulation that requires mortgage companies to document income, fixed expenses and other relevant financial information to determine if the borrower has the ability to repay the loan.
“These rules will help to ensure that Pennsylvanians get mortgages that they can understand and repay,” said secretary of banking Steven Kaplan. “We’re trying to prevent a repeat of some of the practices that contributed to the home foreclosure crisis.”
The lender’s review of this financial information will restrict low- and no-documentation loans, also known as stated-income loans, in which borrowers do not have to provide proof of income, employment and other information.
“Stated-income loans present opportunities for abuse on both sides of the transaction,” Mr. Kaplan said. “The new documentation requirements will go a long way in reducing the potential for fraud and dishonesty.” The regulation also requires lenders and brokers licensed by the department to use a new, simplified, one-page disclosure form that calls attention to loan features, such as a variable interest rate or prepayment penalty, which can cause loan payments to increase or make it difficult to refinance. Loan salespeople must be licensed by the department of banking as well as allowing the department to move quickly to inform the public about enforcement activities against mortgage companies. The laws also restrict prepayment penalties, increase fines for misconduct by real estate appraisers, and require mortgage companies to notify the Pennsylvania Housing Finance Agency when they intend to foreclose.
Violators face fines of up to $10,000 per offense which, Mr. Kaplan notes, are some of the stiffest penalties in the country.
In addition, all mortgage lenders, brokers and salespeople in Pennsylvania must now enroll in the Nationwide Mortgage Licensing System, an online registry that allows regulators in different states to more effectively monitor and share information about the industry.
In New Jersey, legislation is also aimed at stemming the tide of foreclosures.
The Mortgage Stabilization Program and Housing Assistance and Recovery Program is being administered by the New Jersey Housing and Mortgage Finance Agency. It requires creditors initiating foreclosures to notify municipalities where the property is located and subjects them to a six-month forbearance period, during which they are prohibited from taking steps to remove the borrower/homeowner from a property and would participate in mediation to keep them in the home.
The $25 million Mortgage Stabilization Fund will make loans of up to $25,000 to homeowners and lenders to refinance a first mortgage in danger of foreclosure. The $15 million Housing Assistance and Recovery Program Support Fund will assist state-certified foreclosure prevention and counseling groups.
The Institute for Foreclosure Legal Assistance has awarded $2.4 million in grants to nine legal-aid offices in as many states. The grants are the second and final round in a multi-year program to bolster local groups nationwide who assist the growing legion of borrowers facing foreclosure. Last year the Institute awarded $6.5 million to 27 groups in 19 states and the District of Columbia.
The Institute, a project of the Center for Responsible Lending and managed by the National Association of Consumer Advocates, made the second round of awards to groups in communities not served by the first-round of grantees but especially hard hit by the ongoing wave of foreclosures. The grants range in size from $250,000 to $300,000 and will be provided over three years, with annual reviews. The money will enable the recipient groups to hire additional attorneys specializing in foreclosure prevention.
IFLA attorneys have assisted over 1200 clients, trained direct local service providers on identifying clients who need legal representation and participated in community outreach events geared to reach homeowners at risk of foreclosure.