Massachusetts Legislature Passes New Foreclosure Aid Bill
One by one, states are making moves to guarantee additional oversight over mortgage lending and to provide a safety net for troubled homeowners facing foreclosure. In Massachusetts, the state Legislature passed such a bill this week that does precisely that. The Governor is expected to sign the measure next week.
The new legislation, combined with regulations disclosed earlier by the Massachusetts Attorney General’s office, is being described by advocates for borrowers as the most stringent crackdown on the mortgage industry in America thus far. The legislature also refused to define mortgage fraud as a criminal offense.
Lenders have foreclosed on more than 6,200 residential properties in Massachusetts so far in 2007.This is more than triple the number during the same period in 2006. Many of the foreclosed loans were unaffordable sub prime adjustable rate mortgages. Unregulated brokers who earned a fee from the lender arranged some of these loans.
The new Massachusetts bill is intended to prevent future problems with increased regulation of those who originate mortgage loans. It also contains provision designed expressly to aid homeowners already in trouble by granting people who fall behind on payments 90 days to correct the situation before lenders can file against them. The new legislation requires that lenders and brokers pay an annual licensing fee and also subjects them to supervision by the Massachusetts Division of Banks. The monies obtained from the licensing fees will finance the cost of counseling for first-time homebuyers who plan to take out the highest-risk type of mortgage loans.
The bill also provides for a new system of evaluating lenders. They would be publicly graded on the types and numbers of loans they make, particularly to borrowers in low-income areas. The system is designed like the Community Reinvestment Act, a federal law that grades banks by judging how well they are able to meet the needs of communities with lower incomes. Interestingly enough, many of the ideas embodies in the new legislation were garnered from a proposal suggested by Governor Patrick.
Right now in Massachusetts, as in many other states, new owners who bought homes in foreclosure are not required to honor leases agreed to by the former owners. The new bill requires a court hearing before an eviction can take place.
The Massachusetts Attorney General had pressed for the legislature to define mortgage fraud as a new crime to make it easier for the state to bring new cases before the courts. However, this was denied because there are other laws against making a fraudulent loan that are already in place in the state. The matter of criminal penalties is still under discussion.
Similar legislation to the new Massachusetts bill is underway in New York, Ohio and several other states, although none has yet been enacted. In all cases, the dire predictions for additional mortgage foreclosures well into 2009 have been an important catalyst for states concerned with prevention and the protection of the overall economy.
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