Massachusetts Gov. Deval Patrick last week filed legislation that aims to protect consumers from predatory lending and mortgage foreclosures while criminalizing abuses that could be creating more problems within the home-loan system.
The bill filed by Patrick last Monday would implement recommendations from the Mortgage Summit Working Group convened in the state in response to rising foreclosure rates. The group, led by Commissioner of Banks Steven L. Antonakes, included nearly 50 participants from government agencies, nonprofits and the mortgage lending industry.
Key provisions include:
• Criminalizing mortgage fraud: In response to rising instances of mortgage fraud, the bill would define mortgage fraud in statute and create criminal penalties for violations.
• Prohibiting “abusive” foreclosure rescue schemes: A news release from Patrick’s office said “unscrupulous individuals and groups” have been preying on consumers’ fears of losing their homes by promising to let them stay in their homes if they sign over the properties. “Many people who fall victim to this scheme think that they are making mortgage payments when in fact they are paying rent,” the news release said. This bill would prohibit such agreements unless the purchaser is a direct relative.
• Requiring a notice of intent to foreclose and of right to cure: When notifying consumers that they are in default, lenders would have to tell them they have a right to cure or correct the problem, and that if they don’t, there will be a foreclosure.
• Requiring an opt-out for adjustable-rate subprime loans: No lender could write an adjustable-rate subprime loan without first getting the consumer to opt out, in writing, of a fixed-rate product. Patrick’s news release notes that subprime fixed-rate loans “have performed well and allowed consumers with impaired credit to reestablish their credit history,” while subprime adjustable-rate mortgages “have very high default rates and higher foreclosure rates.” Homebuyers signing up for an adjustable-rate loan would also have to present a certificate showing they have received homebuyer counseling.
• Creating a repository of foreclosure information: Copies of foreclosure notices would have to be filed with the state Division of Banks, along with details of any final foreclosure. The agency would compile and analyze the data.
“We must help homeowners facing foreclosures,” Patrick said in the release. “The problem is complex and requires a comprehensive approach.”
