Attorney
General Swanson Releases Predatory Mortgage Lending Study Group Report and Proposes Legislation Follow the link to see the reports. Like most government web sites they are in PDF format.
The Report outlines the problems with mortgage fraud and includes maps clearly showing that their are more foreclosures in some neighborhoods than in others, and that fraudulent lending practices plays a role in too many of the foreclosures our attorney general is proposing legislation for:
Predatory Mortgage Lending Proposals
1)Prudent and Appropriate Lending
• Lender must verify borrowers’ reasonable ability to pay loan
• Prohibitions on "Churning" or refinancing without benefit to the borrower -Prohibitions on loans resulting in negative amortization
• Requires loan counseling before refinancing subsidized loans or "special mortgages"
2) Eliminate Waiver of Fiduciary Duty for Brokers
• Bars brokers from avoiding legal obligation to act in borrower’s best interest.
• Currently brokers may avoid fiduciary duty by issuing a boilerplate waiver to borrower.
3) Criminal Penalty for Knowingly Providing "Grossly Unsuitable" Loan -Criminal penalties up to $75,000 or 2 years in prison
• Additional penalties for crimes against disabled and elderly
4) Prepayment Penalty Prohibition -Reinstates ban on prepayment penalties -Lenders using federal law to preempt still required to disclose
5) 5% Cost Limit: Add Yield Spread Premium and Third Party, Non-Governmental Costs
• Adds yield spread payments from lenders and closing service costs to the 5% cap on loan fees.
6) Comparable Monthly Payment Quotes
• Require that lenders include taxes, insurance, escrow in comparing loans
7) Private Right of Action in Chapter 58
• Allows borrower to sue for violations under chapter 58
• Credit unions, and federal or state chartered banks are exempted
8) Private Right of Action in Chapter 82B for Fraudulent Appraisals
• Allows lenders and borrowers to sue for fraudulent appraisal violations under chapter 82B
Read Legislature urged to rein in home loan abuses – St. Paul Pioneer Press
This is just the tip of the legislation iceberg that is about to tear through the mortgage industry.
As a lender of 17 years, I am embarrassed at our lack of self-control and our inability or unwillingness to self-police. Here in California, any one of a number of easy banking licenses is all that is required to set up a lending shop. Even the Real Estate licensing exam that the rest of us must obtain to do loans is a joke.
Although legislators often miss the mark when reacting to this type of crises, bad behavior begs some action. And in this case, we’ve done it to ourselves.
Marc,
I think we do have opportunities for reform nation wide. Like you it does sadden me that it takes a crisis like a lot of foreclosures to get everyones attention. I have to admitt I have seen some questionable practices by both the mortgage and real estate industries in Minnesota. I think incompetence does as much or more damage than fraud.
Am I the only one who sees the hypocrisy of the federal charter exemption in item 7 ?