March 17, 2005
Pa. plan targeting foreclosures
By Joseph N. DiStefano
Inquirer Staff Writer
The Pennsylvania Banking Department, feeling pressure to reduce home-mortgage foreclosures, has recommended a string of changes in the way the state regulates home loans and handles complaints about lenders.
State Banking Secretary A. William Schenck 3d laid out the proposals a day after meeting with a handful of legislators to discuss a 100-page report his department commissioned with the nonprofit Reinvestment Fund, of Philadelphia. Schenck made his proposals with input from industry and consumer groups.
The Reinvestment Fund's report found that Pennsylvania, despite its relative wealth and relatively low unemployment, ranks fourth in the nation in the rate at which high-priced "sub-prime" loans are foreclosed, and ninth in overall foreclosures.
In Philadelphia, two of every five sub-prime loans in 1998 and 1999 had been foreclosed by 2003, the fund reported. Sub-prime loans are designed for people with damaged credit.
Though foreclosures are rising in many states, due partly to rising property taxes, medical and energy costs, and a decline in well-paid manufacturing jobs, the report blamed especially "abusive lending practices" and weak state regulation for Pennsylvania's record.
Among Schenck's proposals for his own department:
Over the next three months, define what state law calls "dishonest, fraudulent, unfair/unethical and illegal" loan practices; then write new regulations based on the definitions, and punish loan professionals who violate them.
Set up a foreclosure-assistance office to help homeowners, in cooperation with the Pennsylvania Housing Finance Agency and its Homeowners' Emergency Mortgage Assistance Program (HEMAP, 1-800-342-2397), which gives limited aid to qualified borrowers.
Among the proposals Schenck hopes to bring to the General Assembly:
Force loan brokers, including real estate agents and contractors who arrange loans, to get state licenses, and set up testing and certification requirements. Now, only loan brokerage firms - not individual brokers - need licenses, Schenck said.
Allow the Banking Department to publicly disclose complaints and enforcement actions against specific loan brokers and other professionals, making it easier for consumers to know their reputations.
Collect information on every foreclosure notice filed in the state, and make it possible to trace every home loan to its original broker, lender and appraiser, even after the loans are sold or transferred.
Expand the board that oversees real estate appraisers to include law enforcement and Banking Department officials, give the board greater power to punish appraisers who have broken the law, and raise the maximum fine for appraiser violations to $10,000 from the current $1,000.
Review existing mortgage laws to measure whether they truly help consumers.
Rep. Craig Dally (R., Nazareth), a champion of the foreclosure study, praised Schenck's "deliberate approach" and said some laws could be changed during the current legislative session. But "further discussion on complex issues" will be needed before all could be adopted, he said.
Schenck's plan was developed with help from lobbyists for mortgage lenders, mortgage brokers, real estate salespeople, and other industry groups "who have pretty much signed on" because "they don't want the bad guys any more than we do," Schenck said. But, Schenck acknowledged, consumer groups, which also were consulted, still "want us to do more."
Schenck, a former bank and loan-company executive, distinguishes between "quality lenders who always make sure you have a [loan] that suits you," and less-savory firms that "don't care about relationships. They're in the business to get as much money out of [uneducated borrowers] as they can."
John Anthony, president of the Pennsylvania Association of Mortgage Brokers, said the idea of licensing individuals could work, depending on the details. He said he looked forward to developing a proposal with Schenck.
Would the changes help? "Schenck is a good guy, and the state has done a nice job. But they also need to set aside some money for people to get out of these holes they're in," said John Dodd, director of the Philadelphia Unemployment Project. For the last year, it has been mobilizing those whose mortgages have been foreclosed and pressing Philadelphia Sheriff John Green to change foreclosure sales practices. (see flyer)
Dodd praised Gov. Rendell for funding the state mortgage-aid program after predecessors had not, but noted that funds have stayed at $5 million the last two years, as foreclosures have risen.
"There's all this political push to get people into homes. But there are people who can't afford a house and shouldn't have a house. And so there's an epidemic of sheriff's sales," Dodd said.
"It's great that the City of Philadelphia has helped people with settlement costs, but what are they supposed to do when their furnace blows and they don't have $3,000? And then, when something goes wrong, everyone files papers on them. There's legal fees, and sheriff's fees, and late fees, and newspaper [advertising] fees. It's thousands of dollars in additional costs. These people need help when they get in trouble."