State Legislators Respond to Subprime Lending Problems
Pursuing a range of approaches in response to the mortgage lending excesses that became apparent in the subprime market earlier this year and looking to reduce foreclosures, legislators in more than 30 states had introduced close to 100 bills by the start of this month — some more effective than others.
Most recently, North Carolina Gov. Michael Easley received national attention when he signed legislation that will limit the ability of mortgage brokers to charge customers above-market rates and prepayment penalties. The law also shields subprime borrowers from certain adjustable-rate mortgages that are highly risky.
Other states have been pursuing a range of options in response to the recent spike in subprime borrowers who find they cannot afford to make their monthly housing payments once their loans are reset at a higher interest rate. Among them:
- Maine, Minnesota and Ohio have passed measures tightening restrictions on subprime lending.
- Illinois, New York and Massachusetts have formed task forces with representatives of the mortgage industry to rework problem loans.
- Minnesota is acquiring foreclosed properties to resell to low-income families.
- Maryland, Massachusetts, New Jersey, New York, Ohio and Pennsylvania have rolled out mortgage programs intended to refinance loans by at-risk home owners, using the proceeds of state bond issues and money from federal lending agencies.
- Several states are considering laws and regulations to make mortgage brokers responsible for allowing borrowers to take on debt they cannot afford.
- Ohio regulators agreed to tighten the underwriting standards on adjustable rate mortgages, directing lenders in the subprime market to verify a borrower's income, inform borrowers of prepayment charges and stop underwriting loans at the initial teaser rate. The Ohio Foreclosure Prevention Task Force has called for $50 million in grants to help cities redevelop neighborhoods hardest hit by foreclosures and blighted by abandoned houses.
Additional action is expected in the coming weeks as state legislators return to work this fall.
For more information, e-mail Beth Ambrose at NAHB, or call her at 800-368-5242 x8253.