Wednesday, March 23, 2005

Foreclosure numbers draw alarm

An investigations unit has been created to help remedy high foreclosure rates.
Daily Record/Sunday News

State government officials need to do more to reduce the high number of foreclosures in Pennsylvania so fewer residents will lose their homes, said the state's banking secretary.

His comments follow the state Department of Banking's release of a study that confirmed Pennsylvania's high foreclosure rate and found that most foreclosures are the fault of "subprime" mortgages.

"Subprime" refers to borrowers' credit characteristics, including prior foreclosure filings, bankruptcies and bad credit.

Pennsylvania's "subprime" foreclosure rate in 2003 was 11.9 percent, the fourth-highest rate in the country, according to the report entitled "Losing the American Dream: A Report on Residential Mortgage Foreclosures and Abusive Lending Practices in Pennsylvania," which the agency released last week.

Meanwhile, the state's prime foreclosure rate was 0.85 percent, the ninth-highest rate in the nation.

The full report can be found at

"It's clear that there's been some abusive practices in Pennsylvania for quite some time," said banking department Secretary Bill Schenck.

Typically, foreclosures are attributed to job loss, high medical expenses and divorce. In the Pennsylvania, however, predatory lending and a lack of personal finance knowledge are to blame, he said.

"In some cases, people have owned the house for a long time and they refinanced it in order to fix a leaky roof. Perhaps (they) didn't understand the financing transaction that occurred," Schenck explained. "Suddenly, you lose a house that you've owned for years; you had something to give to your kids and you don't anymore ... and it's happening every day in every county in Pennsylvania."

Even for prime mortgage lenders, cracking down on subprime lenders is important, said Dick Ehst, executive vice president/managing director of corporate communication for Wyomissing-based Sovereign Bank. The bank has mortgage programs across the country.

"We all have a vested interest in the way in which lenders behave," he said. "The consumer doesn't necessarily make a distinction from one lender or mortgage company to another."

For its part, the York County Chamber of Commerce supports a better-informed consumer who makes intelligent financial choices.

"The businesses that are legitimate and doing it right actually benefit from a consumer that is better informed," said chamber Executive Vice President Bob Jensenius. "We support that because we think that's good for business."

In response to the high foreclosure rates, the state banking department has created an investigations unit, which is slated to have 11 employees to develop civil and criminal cases, and has increased its consumer services, examination and licensing staff.

"We're really turning the banking department into an enforcement agency," Schenck said. "You can have all the consumer protection laws in the world, but if you don't have the manpower to enforce those laws, they don't mean anything."

The department also will develop a list of "best practices" for mortgage brokering, lending and servicing, and ask the industry for voluntary compliance. It made a handful of recommendations to the state Legislature, including creating a pre-licensing testing/certification requirement for mortgage brokers and loan solicitors under the state's Mortgage Bankers and Brokers and Consumer Equity Protection Act.

Much emphasis should be placed on personal finance education, Jensenius said.

"The challenge is after you get a complaint, after you get an investigator, that means it's too late because the person's already had the problem," he said. "Our position is it's better not to have a problem."


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