LANSING – With home foreclosures skyrocketing to Depression-era levels, State Representatives Kate Ebli (D-Monroe) and Kathy Angerer (D-Dundee) today voted to pass the Michigan Home Loan Protection Act, a comprehensive legislative package that cracks down on predatory mortgage-lending practices and strengthens consumer protections in the face of the collapsing subprime mortgage market.
"This plan will protect homeowners from the unscrupulous lenders whose deceptive and misleading practices lead to foreclosures and broken dreams for our residents," said Ebli, a co-sponsor of the plan. "Not only do predatory lenders damage entire communities by putting homeowners in jeopardy, but they putting the brakes on Michigan's economic recovery. By holding lenders accountable, this plan will help reverse the rate of foreclosures in our state and allow us to move our economy forward and create jobs."
The Michigan Home Loan Protection Act will:
- Ban predatory lending practices, such as making loans without requiring a borrower to prove their ability to repay the loan, encouraging a borrower to default, charging excessive late fees and charging fees for a payoff statement.
- Protect homeowners' equity by prohibiting home refinancing to generate fees for the lender unless there is a tangible net benefit to the borrower.
- Protect consumers from being steered toward high-cost loans when they would otherwise qualify for a traditional loan.
- Require vulnerable borrowers to receive independent counseling from a certified third-party, non-profit counselor.
- Give injured and aggrieved homeowners legal recourse so they can independently enforce these consumer protections against unscrupulous lenders.
According to the latest figures from RealtyTrac, an Irvine, Calif.-based online foreclosure firm, Michigan ranks fifth in the nation in foreclosures, with 12,792 foreclosure filings in May 2008. More than half of the country's foreclosure activity last month took place in just four states: California, Florida, Arizona and Michigan, according to RealtyTrac.
According to federal data, subprime borrowers are often steered by brokers into signing Adjustable Rate Mortgages (ARMs) and are not given the option of fixed-rate loans, nor informed of the inherent risks of ARMs. Some lenders and brokers write loans they know borrowers cannot afford just to collect the fees and commissions. Federal home-loan agencies Fannie Mae and Freddie Mac estimate that 30 to 50 percent of all borrowers with subprime loans could have qualified for more affordable mortgages.
"Not a day goes by that you don't hear about the subprime housing market and how it is draining our economy and hurting our communities here in Michigan," said Angerer, who is also a co-sponsor of the package. "The consumer protections included in this package are long overdue. This plan will go a long way to protecting homeowners and consumers from misleading and deceptive lenders who are causing Michigan to have one of the highest foreclosure rates in the nation."
The Michigan Home Loan Protection Act is a key component of a comprehensive strategy touted by House Democrats to combat the rising tide of foreclosures currently devastating Michigan. Other pieces of this strategy include Save the Dream, mortgage loan officer regulation, combating appraisal fraud, and streamlining tax foreclosure law.