Saturday, January 26, 2008

Mortgage Brokers Beware

Anyone takin' a look at this Senate Bill 1167 recently signed by the Governor w/ an effective date of 6/1/08?? There are some pretty punitive penalties included for mortgage brokers.

Here's an overview from January's ISBA Bar Journal:

The law clarifies that brokers must verify that the borrower has the ability to repay the loan at the time it is made through proof and review of the borrower’s income, employment, and other financial records. Failure to meet these duties may result in the broker being personally responsible for the debt in the event of a default.

Brokers are also under a duty to represent the borrower’s best interests in good faith. They must seek the best loan for their borrower. All broker fees must be disclosed to the borrower in advance.

A number of loan formats and practices are proscribed. Brokers may not offer a loan with a pre-payment penalty unless another loan without one is also offered. Prepayment penalties are limited to no more than 3 percent if the loan is ended in the first year, 2 percent if ended in the second, and 1 percent in the third. They cannot be enforced in the event of a sale or if the dwelling is destroyed, such as by fire or storm.

Any changes in loan terms require timely notice to the borrower, “timely” being defined as within three days of notice to the broker from the end lender or within 24 hours of closing. The broker continues to have an obligation to the borrower to protect the borrower from damage such changes will cause. If there isn’t a cure, the broker must re-fund the amount the borrower is damaged.

In addition to potential liability in the event of a default for the debt, brokers are also subject to the enforcement of the other rights and obligations through actions under the Consumer Fraud and Deceptive Business Practices Act by both the Attorney General and by private actions. They are also subject to disciplinary actions by the Department of Financial and Professional Regulation (DFPR).

Ah, more regulation, that will surely help the real estate market.


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