Lawmakers may revise mortgage laws in state

 JACKSON -Lawmakers will be asked to revise Mississippi’s mortgage laws in the wake of a subprime lending crisis that is leading to a record number of foreclosures across the nation.

Mortgage laws will be reviewed in the 2008 legislative session, said House Banking Committee Chairman Danny Guice, R-Ocean Springs. But Guice said he’s not sure how to approach the problem.

“There’s got to be some personal responsibility on both parties’ part. It really doesn’t behoove anybody to have any kind of mortgage that people cannot pay,” said Guice, who is unopposed in the November election.

A quarterly report from the Mortgage Bankers Association showed the number of homeowners who got foreclosure notices in the April-June quarter hit an all-time high of 0.65 percent, up from 0.58 percent in the first three months of the year. It marked the third consecutive quarter that a new record has been set.

The crisis is most severe in subprime mortgages, loans provided to borrowers with weak credit.

In Mississippi, more than 26 percent of the borrowers with subprime adjustable rate mortgages were delinquent, according to the MBA. The report said Mississippi had the nation’s highest overall delinquency rate across all loan types at 9.3 percent.

There are laws in place to limit some predatory lending, but mortgage companies can still offer “exotic products,” such as loans that require no income verification, said Jim Allison, commissioner of the state Department of Banking and Consumer Finance.

“It is some unscrupulous mortgage brokers out there who are trying to get somebody qualified so they can get a fee. They have no vested interest in the loan,” Allison said. “In some instances, people are not ready to have a home.”

Allison said brokers match borrowers with lenders. He said Mississippi’s mortgage laws provide caps on the fees that companies can charge and prohibit mortgage brokers from trying to get consumers to refinance loans unnecessarily.

Adjustable rate mortgages are troublesome because the payments fluctuate with national interest rates. That means a homeowner could see their mortgage payments increase by hundreds of dollars as low introductory interest rates are reset to higher rates.

Allison said the Federal Reserve and other banking regulators have issued special guidance, urging loan service companies to work with borrowers in danger of defaulting on their home mortgages.

The guidelines are not mandatory.

“Lenders don’t want to foreclose. They are protecting their interests when they do it. They would much rather work with the consumer to re-negotiate,” Allison said.

Allison said state regulators also are recommending a one-page disclosure document be given to borrowers that explains how mortgage payments could change over the years.

“We’re trying to get HUD and FHA to buy into it. This disclosure would be given to the consumer about the time the loan is approved,” Allison said.

Attorney General Jim Hood said his office had prosecuted three people in mortgage fraud cases in the past year. According to Hood’s office, the violations can range from lenders falsifying a buyer’s income to a real estate appraiser inflating the value of a house for the benefit of the mortgage broker.

“Legislation is needed, and that’s why we are in the process of drafting a legislative proposal to address predatory lending practices,” Hood said in an e-mail statement to The Associated Press.

Ed Sivak of the Mississippi Economic Policy Center, the policy initiative of the Enterprise Corporation of the Delta, said his organization also would like to see tougher predatory laws.

Sivak said Mississippi should adopt laws similar to North Carolina, which prohibits lenders from selling loans to borrowers who cannot demonstrate they can repay the loan and requires borrowers of subprime loans to get financial counseling before they enter into the contract.

The North Carolina law also prohibits prepayment penalties on first lien mortgages of less than $150,000, Sivak said. Prepayment penalties are additional costs imposed on borrowers who repay a loan early through refinance or home sale.

The ECD, through its Hope Mortgage program, has helped hundreds of low wealth borrowers buy homes with very few of them ending up in foreclosure, Sivak said.

Educating the public about the risks of ARMs has been the focus of the Association of Community Organizations for Reform Now.

ACORN began a campaign last month in Jackson to help homeowners on the verge of disclosure to try and renegotiate with their lenders for a fixed rate.

“Our phone has literally been ringing off the hook. People are calling from all over Mississippi and saying, ‘Help, I’m in an adjustable rate mortgage,'” said Sonya Murphy, head organizer for ACORN’s Jackson office.

ACORN released a report this week that said Jackson has one of the nation’s highest incidences of subprime lending, especially to minorities.

Murphy said ACORN will ask the Jackson City Council to adopt a resolution that calls on the 25 largest subprime lenders to suspend foreclosure on occupied properties for three months and use that time to renegotiate with the homeowners so they can avoid foreclosure.

By SHELIA BYRD, Hattiesburg American

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