On the Defensive: Legislation Aims at Protecting Ohio Mortgage Lending

Why has the word crisis so often been used in connection with the Ohio housing market?

It’s a sad reality, with nation-leading foreclosure rates, along with stories of rampant consumer fraud, grabbing the headlines across the region. Sadly, these are justthe tip of a very large, financially dangerous iceberg.

As the Ohio legislature saw the situation, these were mere symptoms of rampant systemic problems that required extensive legislation to fix. Therefore, last year the legislature passed and former Gov. Taft signed Senate Bill 185, affecting virtually the entire residential mortgage lending industry.

The law became effective Jan. 1.
S.B. 185 is sweeping in its scope. It is designed to remedy numerous abuses consumers endure at several different stages in mortgage lending transactions, as well as to close an information gap suffered by consumers unfamiliar with complex lending and home purchase loan closing processes.

Consumer protection
This piece of legislation has been most often portrayed as consumer protection legislation, and by including residential real estate transactions within the coverage of the Consumer Sales Protection Act, it rings valid

The act, Ohio’s primary consumer protection law, in many circumstances gives aggrieved consumers the right to recover triple damages and attorney fees from those who violate the law. It provides good incentives for businesses to “play nice” with their customers.

The act also imposes many new obligations on mortgage brokers, real estate appraisers and the title insurance industry. Previous legislation required mortgage brokers and loan officers to be licensed by the Ohio Department of Commerce.

The new law goes further by requiring national criminal background checks of all applicants, and prohibiting licensure of those with a history of involvement in various criminal acts, such as theft, fraud, embezzlement and a host of other misdeeds.

In addition, operations managers of brokers now have to undergo extensive education covering lending laws, the consumer protection act, ethical responsibilities and other topics. In a direct attack on a widespread problem, home mortgage brokers must now give customers expanded disclosure statements.

In addition to disclosing fees to be paid by the customer to the broker and others, borrowers of loans exceeding 90 percent of the home’s value are now told that they may be unable to refinance home loans and upon sale, may owe more than they receive.

In hearings on the act, the legislature heard stories about unscrupulous acts in connection with real estate appraisals. The new law prohibits appraisals of real estate for mortgage loan purposes by persons not certified or licensed by the state.

Title insurance agents have also been targeted by the new law. Often the only people borrowers see face to face during the borrowing process, title agents are now required to provide several new disclosures to borrowers.

The new law also makes available to sellers, mortgage lenders and buyers/borrowers closing settlement protection, basically indemnification by the title agent against its theft, misappropriation, fraud or failure to disburse settlement funds properly.

Also, the commerce and insurance departments have proposed a series of regulations to fill in the details of SB 185. The new rules will address such issues as factors that should be considered in determining a borrower’s ability to repay a loan and whether a refinance transaction provides a tangible net benefit to the consumer.