PREVENTING PREDATORY LENDING

In response to a nationwide crisis over home foreclosures, on June 11 Gov. John Baldacci signed into law a bill to crack down on predatory mortgage lending practices. The new law dictates the following:

Lenders must evaluate a borrower’s ability to repay subprime loans or loans with interest-only or deferred interest terms, and verify a borrower’s income in making these loans.

Mortgage brokers must act in “good faith and with fair dealing” in any transaction or course of business in brokering or making a mortgage loan. They must recommend mortgages that make sense for the borrower.

Borrowers who refinance must receive a net tangible benefit in order to prevent lenders from “flipping” loans and extracting excessive fees.

High-cost loans that have “points,” or lump-sum interest payments, and fees over 5 percent of the mortgage have strong consumer protections. Lenders are prohibited from financing points and fees in these loans – a practice that makes it easy to strip equity from homeowners while hiding the true cost of the loan.

Creditors subject to state regulation who violate provisions enacted in the bill are subject to monetary penalties and enforcement by the state Office of Consumer Credit Regulation as well as the attorney general. Borrowers also have the right to bring a private court action against creditors for violations and to recover statutory, actual and in some cases punitive damages.

Source: Coastal Enterprises of Wiscasset