State Mortgage Rules to Protect Borrowers

Article excerpt

New lending rules for mortgages that will take effect March 20 will be too late for hundreds of Pennsylvanians who lost their homes in foreclosure, because they got mortgages they couldn't afford.

Still, the state's new rules will arrive in time to spare many others from the same fate, said Dan Sullivan of Action Housing Inc.

"These regulations will help many people moving forward," said Sullivan, mortgage foreclosure specialist with the Downtown-based nonprofit that works to provide affordable housing opportunities in the region.

One key provision among the new rules is that lenders must verify potential borrowers' incomes and employment information. The idea is to curtail so-called "low- or no-doc" loans that required little or no documentation of those factors in advance.

"Many of the unaffordable loans I see are stated income, stated asset loans given to borrowers who truly did not have the ability to pay the mortgage debt," Sullivan said.

Foreclosures in the five-county Pittsburgh region dropped from 3,217 during the first nine months of 2007 to 3,106 during the same period this year, according to RealSTATs, a South Side-based real estate information company. But home losses continue to be a major problem, and Sullivan said some of those foreclosures could have been prevented.

"While it is difficult to regulate a lender's right to assume their own level of risk," he said, "many of these stated income loan products were misused to qualify borrowers for loans that they truly could not afford."

Pennsylvania's new regulations come in conjunction with a broad- based package of mortgage reform laws approved by the Legislature, and signed by Gov. Ed Rendell in July. The rules apply only to mortgage bankers and brokers, not federally chartered commercial banks.

"The major thrust of the regulation is twofold: To restore sound underwriting practices to the licensed mortgage industry, and improve disclosures," said state Secretary of Banking Steve Kaplan. "The lax lending standards and increasingly complex loans that were commonplace during the housing boom helped to create the wave of foreclosures we are facing today. …