Governor Rendell Says New Mortgage Reform Laws Will Protect Homeowners, Save Homes

Governor Edward G. Rendell today signed five bills to protect homebuyers, strengthen oversight of the mortgage industry and end key lending practices that leave homeowners vulnerable to foreclosure. He also urged current homeowners who are worried about meeting their mortgage obligations to call the state for help.

“I’m pleased to finally sign these important protections for homebuyers,” Governor Rendell said. “I thank Rep. Pete Daley and Sen. Pat Browne for sticking with this package year after year until it got done. Getting a mortgage is the largest financial transaction in most people’s lives. The whole process needed tougher oversight. We’re going a long way toward putting that oversight in place today.”

The new laws require loan salespeople to be licensed by the Department of Banking and they allow the department to more quickly inform the public about enforcement activities against mortgage companies. The laws also restrict prepayment penalties, increase fines for misconduct by real estate appraisers, and require mortgage companies to notify the state when they intend to foreclose.

The reforms stem from recommendations in a 2005 study by the Department of Banking, Losing the American Dream: A Report on Residential Mortgage Foreclosures and Abusive Lending Practices in Pennsylvania.  Reform measures include:

·        H.B. 2179 assures Pennsylvania homebuyers that the person selling them a mortgage has successfully passed a background check, completed training specific to state and federal mortgage laws, passed a test to prove their knowledge and is licensed by the Department of Banking. In the past, only mortgage companies had to be licensed in Pennsylvania, not their employees. With this new law consumers can be confident that the individual who handles their mortgage transaction meets certain standards.

·        S.B. 483 makes sure that hard-working Pennsylvanians who buy typical family homes cannot be trapped in escalating, unaffordable mortgages by certain prepayment penalty provisions. In the past, prepayment penalties had been used by some unscrupulous lenders to strip homeowners of hard-earned equity and drive up transaction costs. This law bans licensees from including prepayment penalties on mortgages of $217,873 or less, a figure that will be adjusted for inflation every year from now on.

·        S.B. 484 gives homebuyers more information to evaluate potential mortgage companies or sales people. Until now, Pennsylvania law actually prohibited the Banking Department from telling the public about enforcement actions, fines and penalties against licensees such as mortgage bankers and brokers.  This new law allows the Banking Department to release more information more quickly. 

·        S.B. 485 increases a homebuyer’s confidence that the appraised value of the home is sound.  In the run up to the housing boom, there was significant pressure on appraisers to set values to make certain types of mortgages more attractive and attainable, making it possible for buyers to borrow more than the home was actually worth. This new law extends the consumer protection and lending expertise of the state’s appraisers’ board by adding the Attorney General and the Secretary of Banking to its membership. It also increases the maximum penalty for appraiser misconduct to $10,000 per violation.

·        S.B. 486 puts individual homeowners’ struggles into a statewide context. Currently, foreclosure notices are sent only to the homeowner and filed in the borrower’s home county.  The new law requires that a copy of every foreclosure notice be sent to the Pennsylvania Housing Finance Agency so that foreclosure activity can be monitored in real time. With this data, state government will be able to identify potentially troubling trends, making it possible to intervene more quickly and strategically to help save people’s homes.

“These new laws are crucial steps forward,” the Governor said, “but they are one component of a complex strategy to combat lending abuse and fraud.” 

Governor Rendell noted that, over the past several months, the Banking Department has enhanced examination procedures for licensees, such as mortgage bankers and brokers, to include surveys of some mortgage companies’ customers, closer scrutiny of affiliated business arrangements and greater emphasis on internal business controls. 

He said a regulation in the final stages of state approval would require mortgage companies to verify and document a borrower’s ability to repay an offered loan based on all of its terms and conditions and mandate that lenders clearly disclose certain loan features such as balloon payments, adjustable interest rates, prepayment penalties and whether the lender will escrow taxes and insurance.

The Governor said he has also directed the Banking Department to seek additional legislative measures to prohibit mortgage professionals from exclusively receiving notifications from lenders on behalf of consumers and to encourage them to report any suspicious activity.

“These measures will make tomorrow’s borrowers safer,” the Governor said. “Unfortunately, we know there are scores of Pennsylvania families, today, who are worried about making the mortgage payments they already have. It’s in everyone’s best interest to keep people in their homes and to keep property values strong. We have state programs in place to help struggling homeowners stay in their homes and in their communities.”

To help struggling homeowners, last year Governor Rendell launched two new loan programs — REfinance to an Affordable Loan, or REAL; and Homeowner Equity Recovery Opportunity, or HERO — to help homeowners facing foreclosure. The Pennsylvania Housing Finance Agency manages both programs.

REAL offers refinancing to homeowners whose adjustable-rate or other exotic mortgage has become unaffordable.  It combines 100 percent financing with flexible credit underwriting to provide relief for homeowners with good credit who can’t otherwise qualify for typical refinancing.

HERO offers loans for homeowners who, because of credit or other issues, can’t afford their current mortgage payments and are not eligible for other foreclosure prevention programs.  Unlike the REAL program, HERO loans are directly made by the Pennsylvania Housing Finance Agency, which may negotiate with current mortgage-holders to reduce the amount owed on applicants’ properties.

The Governor urged worried homeowners to contact the Pennsylvania Housing Finance Agency at www.phfa.org or 800-635-4747 to find a list of organizations across the state that have specially trained professionals available to help with mortgage and foreclosure issues.  These professionals have only homeowners’ best interests in mind and, unless specifically approved by the homeowner, do not share information with any other entity. They can determine if a homeowner qualifies for certain government loan programs or, in some cases, work with lenders to try to make house payments more affordable. The help is free. 

“Worried homeowners need to take action now,” Governor Rendell said. “The longer they wait, the more options disappear.”