Pennsylvania Mortgage Brokers, Lenders Must Abide By New Rules
Pennsylvania’s 3,000 mortgage lenders and brokers are officially on notice.
According to the Pocono Record, businesses in the mortgage industry are now beholden to State Banking Department guidelines for “acceptable” conduct.
Acting Banking Secretary Victoria A. Reider outlined the new policy in a letter Friday to mortgage brokers and lenders.
The guidelines — first published in December in the Pennsylvania Bulletin — offer examples and definitions of practices considered dishonest, fraudulent, illegal, unfair, unethical, negligent or incompetent.
The warning comes on the heels on a study released last month on subprime (or bad credit home loan) lending that predicts 2.2 million households nationally have or will lose their homes to foreclosure.
It also comes after word that Monroe County’s foreclosures last year topped 800 filings for the first time since 2003, when the Pennsylvania Banking Department commissioned a study on Monroe’s record default rate.
“This policy will help ensure that home buyers receive the highest level of service when they’re making these important decisions that will impact their financial futures,” Reider said.
Bad credit mortgages carry higher interest rates and less favorable terms than traditional home mortgages but are often used by borrowers who can’t qualify for lower mortgage rates.
Many bad credit mortgage products, said to account for nearly a quarter of all home loans, have sudden large jumps in interest rates that take effect a couple years after the loan is issued.
Some also have a prepayment penalty that prevents its borrowers from any home mortgage refinancing into a new loan without incurring costs that make it impossible to realize a savings.
Reider warns that companies that fail to conform to the new guidelines could face suspension, revocation or non-renewal of their licenses.
Several changes were recommended in a 2005 Banking Department report to the General Assembly on Pennsylvania mortgage foreclosures, conducted following release of its Monroe County study. The state report makes recommendations to curb abusive lending practices.
But the department and other state agencies aren’t doing nearly enough to stop abusive home sale practices, says one local homeowner activist.
“Gov. Rendell’s office should take immediate action to investigate and find remedies to protect homeowners who have continued to be victimized by the criminal element that perpetrates fraudulent practices involving innocent homeowners throughout Monroe County and Pennsylvania,” Pocono Homeowners Defense Association President Al Wilson said in a press release.
Wilson contends the abuses in home sales will continue until county and state law enforcement officials prosecute the perpetrators and put them in jail.