LANSING – With home foreclosures skyrocketing to Depression-era levels, State Representative Pam Byrnes (D-Lyndon Township) today voted for the Michigan Home Loan Protection Act, a comprehensive legislative package that cracks down on predatory mortgage-lending practices and strengthens consumer protections in the face of the collapsing subprime mortgage market.
"The deceitful and misleading practices of predatory lenders have gone unchecked for far too long," Byrnes said. "There are more than two dozen states that have already clamped down on predatory lending by adopting basic guidelines that protect consumers. It is time for Michigan to join these other states and make sure our homeowners are no longer taken advantage of."
The Michigan Home Loan Protection Act will:
- Ban predatory lending practices, such as making loans without requiring a borrower to prove their ability to repay the loan, encouraging a borrower to default, charging excessive late fees and charging fees for a payoff statement.
- Protect homeowners' equity by prohibiting home refinancing to generate fees for the lender unless there is a tangible net benefit to the borrower.
- Protect consumers from being steered toward high-cost loans when they would otherwise qualify for a traditional loan.
- Require vulnerable borrowers to receive independent counseling from a certified third-party, non-profit counselor.
- Give injured and aggrieved homeowners legal recourse so they can independently enforce these consumer protections against unscrupulous lenders.
According to the latest figures from RealtyTrac, an Irvine, Calif.-based online foreclosure firm, Michigan ranks fifth in the nation in foreclosures, with 12,792 foreclosure filings in May 2008. More than half of the country's foreclosure activity last month took place in just four states: California, Florida, Arizona and Michigan, according to RealtyTrac.
According to federal data, sub-prime borrowers are often steered by brokers into signing Adjustable Rate Mortgages (ARMs) and are not given the option of fixed-rate loans, nor informed of the inherent risks of ARMs. Some lenders and brokers write loans they know borrowers cannot afford just to collect the fees and commissions. Federal home-loan agencies Fannie Mae and Freddie Mac estimate that 30 to 50 percent of all borrowers with sub-prime loans could have qualified for more affordable mortgages.
The Michigan Home Loan Protection Act is a key component of a comprehensive strategy touted by House Democrats to combat the rising tide of foreclosures currently devastating Michigan. Other pieces of this strategy include Save the Dream, mortgage loan officer regulation, combating appraisal fraud, and streamlining tax foreclosure law.
"Every day you turn on the news and hear about the failing sub-prime mortgage market, and how it's affecting our economy," Byrnes said. "Michigan is among the states with the highest foreclosure rates in the country. We must place roadblocks against these institutions that specialize in and practice predatory lending. The time for misleading lending practices and the fattening of shady lenders' pockets is over."