Saturday, March 26, 2005

Losing the American Dream

Pa. report shows what has to be done to protrct us

By Helen Colwell Adams
Sunday News

LANCASTER COUNTY, PA - Pennsylvania is fourth in the nation in the rate of foreclosures filed on subprime loans.The question is what the state Legislature is willing to do about it.

Pennsylvania’s dismal ranking emerged in a long-awaited state Banking Department report on foreclosures and predatory lending, “Losing the American Dream.”

The 75-page report, which studied foreclosure and loan statistics from 14 counties, including Lancaster, makes a number of recommendations for regulatory and legislative changes to help protect consumers.

“The subprime lending industry is less regulated and standardized than the prime market, providing greater opportunity for abuse,” the report, available online at, notes.

Gov. Ed Rendell’s administration is pushing for changes in the law, but that effort could run into problems in the Republican-dominated General Assembly.

Banking Secretary William Schenck said he thinks it’s going to happen, partly because his department assembled an advisory group of consumer and industry representatives to develop the recommendations and to present “a united front” to legislators.

The consensus ought to be convincing, he said.

“When we talk about licensing loan solicitors, for example, consumer groups think that’s a good idea,” Schenck said, “and so does the industry.”

Legislative recommendations in the banking department report include:

Raise the 30-year-old cap of $50,000 as the maximum value of a home at which homeowners qualify for protection under state Act 6, which requires lenders to send borrowers a formal notice if they fall behind on mortgage payments. The report also calls for giving the banking department enforcement authority under the law.

Create more licensing and certification requirements for loan solicitors and brokers, and eliminate licensing exemptions for builders and real estate professionals, in both the primary and secondary mortgage markets.

Allow the banking department to share information about consumer complaints with the public.

Require lenders to submit copies of their “Act 91” notices — the formal notification of foreclosure proceedings under state Act 91 — to the Pennsylvania Housing Finance Agency to assist in creation of a database tracking foreclosures.

Change the Act 91 notices to include more information to better identify predatory lending.

Require lenders to submit “reinstatement figures,” or the amount that a borrower has to pay to avert foreclosure, promptly.

Limit attorney fees that can be charged under the Homeowners’ Emergency Mortgage Assistance Program, which provides emergency help for some people facing foreclosure.

Consider requiring pre-closing credit counseling for subprime borrowers to ensure they are not agreeing to a predatory loan.

Create an emergency fund for predatory lending victims.

Authorize a review of the foreclosure process.

Require identification of all the parties involved in the origination of a loan on mortgages recorded at county recorder of deeds offices.

In addition, Schenck pointed out, the banking department has reorganized its staff, adding dozens more examiners, consumer service agents and investigators to focus on lending practices.

His department started Rendell’s term with 108 staffers. That number is now 150, with plans to increase to 178.

The Legislature authorized the extra spending on staff, Schenck said, but the money doesn’t come from taxpayers; the department is funded by fees charged to the industry for licensing and examinations.

State Sen. Gib E. Armstrong, R-13th District, who chairs the Senate’s banking and insurance committee, said he hasn’t had a chance yet to read the whole foreclosure report, but he has told Schenck he will lend support to the reform push.

State Rep. Mike Sturla, D-96th District, said he expects the Legislature to take some action “simply because it’s a consumer protection issue.”

Not everyone in the lending industry is convinced that new laws are needed; instead, they suggest better enforcement of existing laws, including more scrutiny of lenders’ licenses.

“We have a lot of laws and regulations that lenders all have to comply with,” said Craig Roda, president of Fulton Mortgage Co.

“When you have some of the unscrupulous parties out there, we need to enforce the regulations and laws.”


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