Governor Patrick Files Mortgage Fraud Legislation
Bill criminalizes mortgage fraud, protects consumers
"We must help homeowners facing foreclosures," said Governor Patrick. "The problem is complex and requires a comprehensive approach that provides for greater education and information for consumers before securing a mortgage; a more responsive legal framework for homeowners facing foreclosure, and clear consequences for those who engage in mortgage fraud. Massachusetts homeowners and their families deserve no less."
Today's legislation, "An Act Implementing the Division of Banks Mortgage Summit Recommendations," implements recommendations from the Mortgage Summit Working Group that was convened in response to rising foreclosure rates. The Working Group, led by Commissioner of Banks Steven L. Antonakes, included nearly 50 participants from government agencies, non-profit organizations, and the mortgage lending industries who convened to develop a comprehensive foreclosure prevention strategy.
This legislation increases protections for consumers and provides penalties for mortgage fraud.
The bill includes the following provisions:
- 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. With many people facing the threat of foreclosures, unscrupulous individuals and groups have preyed upon consumers' fears of losing their homes by promising to allow homeowners to stay in their home in exchange for signing over the property. Many people who fall victim to this scheme think that they are making mortgage payments when in fact they are paying rent. This bill would prohibit such agreements unless the purchaser is a direct relative.
- Requiring a Notice of Intent to Foreclose and Right to Cure. The bill sets out a right to cure for a consumer that is in default and requires the holder of a mortgage to inform the consumer of this right in addition to the intent to foreclose if the consumer does not cure the default.
- Prohibiting a lender from making an adjustable rate subprime loan unless the borrower opts-out. In reviewing default rates and foreclosure information, subprime fixed rate loans have performed well and allowed consumers with impaired credit to reestablish their credit history. Subprime adjustable rate mortgages (ARMs), on the other hand, have very high default rates and higher foreclosure rates. This bill would prohibit any lender from making a subprime ARM unless the consumer affirmatively opts-out of the fixed rate product and presents a certificate indicating that they have received homebuyer counseling.
- Establishing a central repository of foreclosure information at the Division of Banks. The bill would require lenders and servicers to send a copy of the Notice of Intent to Foreclose and Right to Cure to the Division of Banks as well as the details of any final foreclosure. In addition, the bill requires the Division to establish a database of foreclosure information to track geographic and industry trends relative to foreclosures.
Several other provisions of the legislation address other lending and foreclosure issues identified by the Mortgage Summit Working Group.
Since April, when Governor Patrick first instructed the Division of Banks to seek case-by-case foreclosure delays for homeowners who filed complaints, more than 400 people have reached out to the Division. Just under half of those individuals were already in foreclosure and needed immediate relief. The Division was able to secure 30- to 60-day stays in the foreclosure process in most of those cases. Due to these stays, many individuals and families were able to refinance or are in the process of refinancing their loans, were able to modify their loan terms, have received credit counseling, or were able to sell their homes. In addition, homeowners who contacted the Division and were in financial distress but not yet in foreclosure were partnered with counseling agencies that offer comprehensive services that can help them change direction and hopefully prevent foreclosure from occurring.
In addition, the Division of Banks is also continuing work on the other Working Group recommendations. These include implementing regulatory changes that increase licensing and education requirements for mortgage lenders and brokers to eliminate disreputable firms and practices, and building on the partnerships between government, non-profit organizations, and the mortgage industry to improve the support for homeowners and monitoring of the industry.