New Mortgage Rules Take Effect In Pennsylvania

Pennsylvania home buyers will benefit from new rules governing mortgage disclosures and practices, according to the state Department of Banking.

The rules are contained in a new regulation that requires mortgage companies to document income, fixed expenses and other relevant financial information to determine if the borrower has the ability to repay the loan. The lender's review of this financial information will restrict low- and no-documentation loans.

‘Stated income loans present opportunities for abuse on both sides of the transaction,’ says Pennsylvania's secretary of banking, Steven Kaplan. ‘The new documentation requirements will go a long way in reducing the potential for fraud and dishonesty.’

The new regulation also requires lenders and brokers licensed by the department to use a new, simplified, one-page disclosure form that calls attention to loan features, such as a variable interest rate or prepayment penalty, which can cause loan payments to increase or make it difficult to refinance.

The regulation was published in the Pennsylvania Bulletin on December 20. While other provisions went into effect immediately, mortgage companies were given 90 days to begin complying with the new documentation and disclosure requirements.

Violators face fines of up to $10,000 per offense, which, Kaplan notes, are some of the stiffest penalties in the country.

The regulation is part of a broad-based response to abusive lending practices in Pennsylvania that also includes five bills signed into law by Governor Edward G. Rendell in July 2008.

The new laws require loan salespeople to be licensed by the Department of Banking, as well as allow the department to move quickly to inform the public about enforcement activities against mortgage companies. The laws also restrict prepayment penalties, increase fines for misconduct by real estate appraisers and require mortgage companies to notify the Pennsylvania Housing Finance Agency when they intend to foreclose.

In addition, all mortgage lenders, brokers and salespeople in Pennsylvania must now enroll in the Nationwide Mortgage Licensing System, an online registry that allows regulators in different states to more effectively monitor and share information about the industry.

SOURCE: Pennsylvania Department of Banking

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