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
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previous page | next page1-10 of 31 comments:
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.
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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
The buyer who has the following credit history:
580 fico or credit score
Repo with a balance.
5 credit card charge offs with a balance
Medical collections with balances
State tax liens
Finds a lender.
The lender then finds this person a 100% home loan.
Even gets the seller to pay closing costs.
The buyer comes up with (nothing zero nada) and takes ownership of the home.
To me and please call me crazy what did you think was going to happen...
If the market would like to lend those folks money why stop them. The only folks I see getting hurt here are the lenders.
For the record this loan and lots of others are gone for now. And a higher standard has already come into effect with new guidelines from most if not all mortgage lenders.
Lets face it the past five years of real estate has run its course for now. And it will be back there should be no doubt. But when markets get crazy like the .com's people and business make very bad choices.
But the markets can and for the most part have corrected this problem. If the state jumps in here all they are really doing is taking away choices from the people that they are trying to protect.
Look at health insurance in the state of Maine.
To much government control has taken away choice.
That is why our health insurance costs twice as much as it does in New Hampshire.
If the state tries to control markets by putting even more pressure on these type of lenders.
The lenders will pull out all together; our state is small potato's to most of these companies.
Who does this hurt?
Folks that really do want a second chance.
Maybe what the state should do is mandate that schools teach kids about credit and how this system of ours works. report abuse
You can download a copy of LD 1869 "An Act to Protect Maine Homeowners from Predatory Lending" on the State of Maine web site at www.maine.gov. ; Click on Legislature and then put in the LD number.
The self employed should be very scared.
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Howard - I have to disagree with you. A lawyer is a necessity to review a mortgage transaction. It would be nice if it was a few simple paragraphs but that is perhaps a bit unrealistic.
It's a few hundred bucks well spent versus the disaster of foreclosure and the years of damage to ones credit standing....not to mention losing your home or the thousands extra in fees, points etc. over time.
To be honest, I felt more comfortable closing on my house than the times when I've bought a new car. If the state is going to bring the mortgage business down to the level of a fifth grader, what about the new car business?
Where does it end?report abuse
As a former credit professional, I always took pride in the fact that Maine had better consumer protection laws than other states. When I worked for Jordan Marsh in the early 1980's they charged 21% everywhere except Maine because Maine had an 18% cap. MBNA made sure that went away before they moved here. Now they are gone, but our high rates remain.
When I started my first sales job I was told that it was not wether the customer was actually getting a good deal or not, just wether they PERCEIVED it to be a good deal. Is this the kind of distrustful atmosphere we want to ENCOURAGE here.
Slogan proposal: "Maine the way life should me - Don't trust ANYONE"report abuse
It's the same way with credit cards. The fine print is very small and the wordage is complex for many people. Also with mergers the terms and wording are constantly changing.
Responsibility cuts both ways. It isn't just for the consumer or the little guy. It needs to be also for lenders, merchants, and banks. It isn't like the old days when if the local banker was a crook word got out and he went out of business fast. We're dealing with MEGA companies that have the wherewithal to hire people solely for the purpose of dreaming up schemes to screw people.
A reputable business has no need to fear this law. They are probably operating with best practices anyway. The crooks will get caught. Throw the book at 'em.
By the same token if anyone tore up a contract with me at closing time, I'd KO the deal. Then if it took every last dime I had I'd get the word out to watch them.report abuse
Therefore I was interested in what this legislation would do about dishonest or misleading solicitations from mortgage brokers and their agents? As far as I can tell, ABSOLUTELY NOTHING! Yes all the hype and spin from the proponents like Senator Dana, and dishonest mortgage brokers in Maine will still be permitted to go on misrepresenting and misleading the Maine public! That's of course how most sub-prime borrowers got in trouble in the first place - they believed the dishonest mortgage broker.
However at least now you can go to court instead of arbitration. Of course most mortgages are now packaged together and sold to investors to help keep mortgage rates as low as possible, which also depends on nationally standardized mortgage terms. Apparently not in Maine, where this legislation will make sure lawyers are "fully employed" as Maine mortgage rates go up!report abuse
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