HARRISBURG, Penn. -
The recommendation follows a study of mortgage disclosures performed by the department in 2005. That study followed an earlier request from the General Assembly asking the banking department for a statewide study on mortgage foreclosures in the state, said Heather Tyler, communications director, Pennsylvania's Department of Banking.
What the study showed, Tyler said, were widespread issues with appraisals, brokers and lenders. The department was then left with a decision of what to do now based on the information they gathered. "We decided we could change the way we do business," Tyler said.
The Department of Banking, which also regulates state-chartered credit unions, responded by doubling the staff on the self-help desk, adding a financial-education department, and making other changes.
Support For Two Reasons
Tyler said the regulation is important for two reasons: it offers consumers additional alternatives to foreclosures, and requires lenders to make sure that borrowers can afford payments for the entire duration of the loan. It noted some lenders base loan-approval solely on whether the borrower can afford the payments at the beginning of the loan term, even if it is an adjustable, instead of also forecasting whether borrowers could continue to make payments should the loan rate increase.
Victoria Reider, acting DoB secretary, pointed out that while "innovative mortgage products" can help some borrowers, the problem is that many mortgages have been inappropriately sold to people who didn't understand or couldn't afford them. Those misunderstandings, said Reider, can be seen in the rapidly rising rate of foreclosure.
The proposed regulation requires mortgage companies to use a disclosure form that advises borrowers of, among other things, variable interest rates, balloon payments, prepayment penalties, negative amortization and whether the lender will escrow taxes and insurance for the loan. The regulation also requires mortgage companies to evaluate a borrower's ability to repay the loan based on income, fixed expenses and other relevant factors.
Reider stressed that's its not enough for mortgage companies to just consider the initial "teaser" payment, but must also make sure that the borrower will be able to afford the monthly rates if they rise.
The proposed regulation, which was the subject of public hearings in September, is part of a broader, ongoing effort by the Department of Banking to protect consumers in the mortgage marketplace. In December, 2006, the banking department issued a statement of policy to clearly define dishonest, fraudulent, illegal, unfair, unethical, negligent or incompetent conduct for lenders under existing laws.
The department is also supporting a package of six bills in the General Assembly that are aimed at curbing abusive lending practices. Tyler said that the bills would apply primarily to just mortgage companies, and not depository entities because "they already employ this type of business practice."
FOR MORE DETAILS
For info on this story:
* www.banking.state.pa.us
* www.moneysbestfriend.com
