Mortgage Crisis: How have state legislatures responded?
Thirty-seven states regulate foreclosure rescue transactions, foreclosure notification and timing, or high-cost lending practices (see figure). In response to weakening housing markets and the rise in foreclosures, state legislatures have passed new laws to help current and future homeowners by preventing foreclosure rescue scams and equity stripping, lengthening the foreclosure process, imposing fair-practice duties on lenders, and regulating high-risk mortgages.
See detailed table of state legislative responses to the mortgage crisis
- Homeowners in danger of foreclosure are often targets of foreclosure rescue scams, which promise to help clients avoid foreclosure but often leave them with no home and bad credit. Laws designed to protect borrowers from such scams often require that mortgage consultants fully disclose the terms of the agreement, mandate a cooling-off period during which the homebuyer may cancel the contract, limit consultant fees, or bar the transfer of property to consultants. Eleven states1 have such laws.
- Other legislation has addressed the foreclosure process itself. Maryland, for example, recently lengthened its foreclosure process, requiring that foreclosure sales take place at least ninety days after default and forty-five days after a notice of intent to foreclose is sent. Idaho requires that foreclosure notification papers include a warning about foreclosure rescue scams, and Maryland requires that foreclosure notices contain a referral to counseling.
- Eight states2 require loan originators to assess the borrower’s financial situation or ability to repay before recommending a loan. Colorado, Massachusetts, and Washington require mortgage brokers to act in the best interests of the borrower.
- Most states also have laws intended to protect consumers from predatory lending. Such laws often restrict fees, prepayment penalties, or the amount of insurance that lenders may require borrowers to buy. Nine states3 require homebuyers to undergo counseling before receiving a high-cost loan. Many states impose criminal or civil penalties or both for predatory lending.