New Jersey's Banking Department, like those of many other states, has proposed a slew of new regulations that would affect thousands of local mortgage institutions.

The proposals, announced Sunday, would beef up controls on lenders and enhance the state banking commissioner's ability to crack down on crooked ones.

The proposed rules will be debated publicly for the next month. State officials say they expect a final version to be adopted this fall.

In recent years, states have replaced the federal government as the chief regulators of mortgage lenders. Lenders say that states like New Jersey will only continue to increase their regulatory grip on lenders.

A Spreading Phenomenon

Just last week, Massachusetts adopted tough lending rules in the wake of the demise of Abbey Financial Corp., Cambridge, Mass., last April. Georgia and Illinois have also been aggressively adopting rules for lenders.

New Jersey's move is especially important considering the state's position as a trailblazer in regulating residential lenders, industry observers said.

"New Jersey is always kind of stirring the pot," said Andrea Lee Negroni, a Washington lawyer who has written on state regulation of lenders.

Ms. Negroni said states around the nation are adopting regulations of home lenders. More state regulations, she said, would "discourage new entrants" into residential lending. And she said lenders have not paid enough attention to regulatory changes on the state level.

Federal regulations of lenders are lacking, she said.

"I just don't think federal rules are accomplishing much besides putting money in the pockets of lawyers, including me," she said.

New Provisions

New Jersey's proposals in part would require bankers to set aside a $150,000 bond and brokers a $50,000 bond in order to lend in the state; give the state's commissioner the power to order restitution for improper fees; require lenders from outside the state to be licensed locally; and assign responsibility for a loan commitment to both the originator and its subsequent buyer.

E. Robert Levy, executive director of the New Jersey Mortgage Bankers Association, said some of the proposals probably wouldn't work, and he emphasized that his group would be vocal during the comment period.

In particular, Mr. Levy said, the higher bond requirement could put "hundreds" of local lenders out of business. He said the proposed regulations also grant the state banking commissioner too much enforcement latitude.

The banking commissioner, Elizabeth Randall, said the need for such regulations became apparent this year when hundreds of borrowers became victims of "bad-apple mortgage brokers and bankers."

In the first five months of 1994, the state received 665 complaints against mortgage lenders, 83% more than in the same period of 1993, according to the state banking agency.

Ms. Randall cited the now-defunct Harrington Mortgage Co., North Bergen, and Tri-State Mortgage Capital, Little Falls, as lenders that bilked borrowers.

Lender Legislation

New Jersey's Department of Banking has proposed new regulations for mortgage bankers and brokers:

* To give the banking commissioner broad authority to take action against lenders

* To increase the minimum bond required to operate as a mortgage broker or banker

* To assign legal responsibility for loan commitments

* To set advertising guidelines

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