Thursday, March 26, 2009

Finally, Mortgage Rules that Make Sense

As a part of Governor Rendell’s comprehensive plan to address the housing crisis in Pennsylvania, the state has implemented a number of new regulations for mortgage companies to prevent the kinds of opportunistic and irresponsible mortgage practices partially responsible for this foreclosure mess. The regulations went into effect last week, and are attached to some pretty hefty fines. Mortgage companies are now required to record the borrower’s income and fixed expenses, as well as proof of his or her employment. Equally important, mortgage companies are now required to provide the buyer with a simple, one page document outlining the details and caveats of their loans, including variable interest rates and prepayment penalties.

Borrowers find themselves facing foreclosure for a variety of reasons. Some borrowers lose their jobs, and their unemployment payments are unable to keep pace with all their expenses, especially their mortgage payments. Others enter into contracts with lenders that are less than upfront, and some with lenders who are downright dishonest. Still, others bought property that did not appreciate over time, meaning that they could not refinance or borrow enough money to make what are called “balloon” payments. Regardless of the reasoning, the foreclosure/subprime crisis is at the eye of this storm, and these new regulations are necessary, and overdue, steps in addressing the kind of mortgage trickery that forced too many families out of their homes.

But what are laws without enforcement? Blame without consequence? Breaking the rules hardly seems like anything to fret about these days, at least for corporations. When corporations behave unethically or unlawfully, they’re offered bailouts—heck, even bonuses—in return. But these new rules are, at least seemingly, going to be taken seriously by the state and, more specifically, the Department of Banking. Fines up to $10,000 per offense, although not appallingly high, are some of the highest in the country for these types of misconduct.

Let’s hope it’s enough.

This regulation was published in the Pennsylvania Bulletin on December 20, 2008. Although other provisions went into effect then, mortgage companies were given 90 days to begin complying with these new documentation and disclosure regulations. For more information on the set of requirements and regulations, read the official press release at: http://www.banking.state.pa.us/banking/lib/banking/news_and_events/press_releases/2009/rls-bank-newmortrules2-031909.pdf.

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