LANSING – With home foreclosures skyrocketing to Depression-era levels, the Michigan House today approved 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.
"These protections from the deceptive and fraudulent practices of predatory lenders are long overdue," said Majority Floor Leader Steve Tobocman (D-Detroit). "It is time that Michigan joins the more than two dozen other states that have adopted basic consumer protections to ensure that homeowners are not taken advantage of by unscrupulous lenders."
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.
"You can't go a day without hearing in the news about the demise of the subprime mortgage market and the negative effect it's having on the economy both here in Michigan and across the nation and world," said State Representative Andy Coulouris (D-Saginaw), Chairman of the House Banking and Financial Services Committee. "Michigan continues to have one of the highest foreclosure rates in the country. This package will protect consumers and homeowners from the subset of deceptive and misleading lending practices that line mortgage lenders' pockets and lead to foreclosures with no tangible benefits to homeowners."
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, subprime 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 subprime 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.
"Being forcibly removed from one's home is one of the most stressful and devastating events a family can experience," said State Representative Marc Corriveau (D-Northville). "Predatory home loans jeopardize entire communities and hamper Michigan's economic recovery. Our legislation will hold lenders accountable and help reverse the skyrocketing rate of foreclosures in our state."