Tuesday, May 1, 2007
2007 Press Herald file
Donna Gillette, a victim of predatory lending practices, appeared at Monday's news conference.
Mortgage brokers would be subject to significant restrictions under a proposal introduced in the Maine Legislature Monday designed to crack down on predatory lending practices.
The bill, backed by House Speaker Glenn Cummings, D-Portland, and Sen. Dana Dow, R-Waldoboro, would limit the fees lenders can collect on a loan; ban mortgage clauses that restrict a borrower's ability to go to court; require greater disclosure on loan documents; and toughen the penalties for violations while adding two new enforcement positions.
The bill has bipartisan co-sponsorship of more than 100 legislators and nearly 40 consumer, lending, religious and other organizations.
The proposal comes against a backdrop of rising foreclosure rates, both in Maine and nationally, and a wave of bankruptcies by several lenders who targeted borrowers with poor credit histories because they could charge higher interest rates.
One reason for the rising foreclosure rates is that many subprime loans offer interest rates that start off relatively low but are adjusted upward, often substantially, after about two years. Borrowers who had trouble making the payments under the low "teaser" rate are unable to make the higher monthly payments after the rates increase, and their ability to refinance has been limited by plateauing home values.
Maine's proposal would "go an awfully long way toward addressing the predatory lending abuses that have led us to this foreclosure crisis," said Uriah King, a policy associate with the Center for Responsible Lending, a national nonprofit group that focuses on homeownership and lending practices.
A key provision, King said, requires lenders to make sure a borrower has the ability to repay the loan, especially considering other costs that go along with home ownership, such as insurance and taxes. That calculation of the borrower's ability to keep up with the loan would be based on the higher interest rate that will be charged for most of the life of the loan, rather than the initial teaser rate, the proposal said.
That provision "actually supports homeownership and makes sure that it (the loan) doesn't become a noose around the heads of Maine families," King said.
The law would:
In a case cited at a State House news conference Monday, Donna Gillette said she sought to buy a house in Sanford for $165,000. Gillette said she was offered an adjustable-rate mortgage with no money down and a starting interest rate of 8 percent.
But before closing, the banker tore up the loan agreement and said the interest rate would have to be 10 percent, she said. By the time a second lien loan and other fees were tacked on, the cost of the house had shot up to $188,000, which included $12,000 in settlement costs financed into the loan, said Gillette.
Richard Hackett, a partner at Pierce Atwood who teaches banking law at Boston University, said some of the proposed law's provisions are warranted, but he said the bans on flipping loans and restricting fees may go too far.
Hackett, who said he usually represents lenders in his practice, said the ban on flipping could make it difficult for borrowers to refinance a loan with their current lender. And the restriction on fees would put Maine chartered banks at a disadvantage compared to federally chartered institutions, which have an 8 percent limit.
"It's creating a rigid set of rules, broadly applicable and creating an uneven playing field," he said.
The Associated Press contributed to this story.
Staff Writer Edward D. Murphy can be contacted at 791-6465 or at: emurphy@pressherald.com
Reader comments
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Tim - with mortgage foreclosures reaching record high levels your concern that "these regulations will make it harder for people with borderline incomes or spotty credit histories to get a mortgage." is WAY off base. Many, many people who should never have qualified for mortgages got them. That's a very big part of the foreclosure storm that is going to get bigger and bigger in the near future.report abuse
A ban on arbitration sounds like an overly rigid rule. Sometimes arbitration is preferable to than court.
Also, if the law has the provision that requires borrowers to speak with financial counselors, then it's foolish to keep all of the other regulations. Because the counselor can provide advice specific to each consumer, any regulations wouldn't provide added value, but regulations could create red tape.
Also, I agree with what Tim said.report abuse
Lets see your smart friends credit history.
report abuse
I'm always worried when one of our state Reps or Sens is trying to tackle a complex issue. Most times it seems like they lack the intellectual ability to understand what they are regulating or to think through the potential consequences.
That's a good part of the reason we pay some of the highest health insurance rates in the nation and why Dirigo has almost no hope of succeeding.
I wonder if they've considered the fact that quite likely these regulations will make it harder for people with borderline incomes or spotty credit histories to get a mortgage. What's next for them? Taxpayer guaranteed bailouts? No hope of attaining the American Dream?
Maybe there will be something similar to health insurance....many mortgage lenders will bail out of Maine and the few left will charge higher rates.
Think our esteemed Speaker and State Senator have considered that?report abuse
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