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FOR IMMEDIATE RELEASE
August 4, 2008

A Capitol Perspective
A column by State Senator Pat Browne
16th Senatorial District

Mortgage Bills Signed into Law

Of all of the threads that bind together the patchwork quilt of Pennsylvania's many diverse communities, homeownership certainly should be one of the most unbreakable ties that bind.  For generations, homeownership has stood as the dominant source of wealth creation for Pennsylvanian families and its proliferation is a key component of our many neighborhoods' stability and vitality.  The General Assembly's actions in adopting statutes and programs which promote and protect a vibrant residential sector is a testament to the importance of homeownership to the well being of the Commonwealth's citizenry.           

The recent escalation of home mortgage foreclosures in the Commonwealth is alarming.  Over the past several years, fueled by the recent and rapid downturn in residential real estate values, a record number of Pennsylvania families have found themselves in default of the very obligation which promised them a path to prosperity.  This phenomenon is, of course, not confined to the jurisdictional boundaries of our fair state.  The nation is griped in a residential credit crisis which has rippled down not only main street but Wall Street as well, threatening to dislodge our country's future economic conditions.  Unfortunately, the pervasive effects of this dilemma do not end here.  According to surveys recently conducted by the National League of Cities, the mortgage foreclosure crisis has caused a nationwide drop in municipal revenue, a spike in crime, more homelessness and an increase in vacant properties and urban blight. 

In the spirit of state government's past actions to establish a framework which protects our citizens in their most important financial and personal transaction, a package of legislation which I was the prime sponsor of has been recently adopted by Harrisburg which targets and addresses the fundamental components of the current residential mortgage dilemma.  Furthermore, the package builds on the current infrastructure of state government to provide better tools for response to future threats to our residential marketplace. 

The new laws are targeted to reform the relationship between our citizenry and those who intend to solicit their participation in first and second mortgage products.   A common factor in many loan arrangements which have gone into default in recent years is the unsuitability of the loan product to the financial circumstances of the borrower. By requiring the professional licensure of individuals and entities who engage in originating first and second mortgage products to consumers, will help to ensure that these originators act not only as solicitors of their products but as fiduciaries. With this greater responsibility, transactions will not only be motivated by monetary gain but by the suitability of the product to the individual customer. 

In the past, state government made a determination that one of the revenue components of a loan product, prepayment penalties, must be restricted to provide greater protections for those citizens with limited financial means.  As rates have been adjusted for millions of loan products across the country in recent months, prepayment penalty provision have made it impossible for borrowers to refinance their debt, further escalating defaults. By amending the Loan Interest Protection Act of 1974 from the current $50,000 loan cap to an inflation-adjusted $217,000 cap, state government will eliminate the default risk that prepayment penalties pose to thousands of Pennsylvania consumers. 

In addition to the mortgage banker, broker and solicitor, one of the primary participants in a residential mortgage transaction is the residential real estate appraiser.  How they carry out their professional duties does and will have a major effect on the suitability of a consumer's home purchase transaction. To increase protections for consumers in the oversight of appraisers in performing their duties in residential transactions, this legislative package has amended the Appraiser's licensing statute by adding the participation of the Pennsylvania Attorney General and the Secretary of Banking to the Appraiser's Board. It also expands the relevant circumstances upon which the Appraiser's Board may take enforcement action. 

Of course, the role of the Secretary of Banking in protecting Pennsylvanians in residential transactions cannot be limited to appraiser oversight.  To ensure that those who participate in the residential mortgage business in Pennsylvania adhere to the highest professional standards demanded by and vital to our citizens, the Secretary is now able to perform criminal background checks on all those seeking licensure through the Banking department as well as allow the department to disclose to consumers information on completed disciplinary and pending enforcement actions against licensees. 

Last, but certainly not least, how effective state government is at protecting its consumers depends on how proactively we can respond to signs of growing irregularities in the regulated marketplace, including residential mortgage transactions.  This legislative package increases our ability to be proactive by requiring lending institutions to forward foreclosure notices to the Pennsylvania Housing Finance Agency (PHFA).  With this information, PHFA will be required to monitor foreclosure trends and make appropriate recommendations for remedial action to the General Assembly.  Proposed amendments to the PHFA Act will also protect current borrowers by requiring face-to-face financial counseling as part of the Home Emergency Mortgage Assistance Program (HEMAP) process and by lowering the finance charge applicable to HEMAP assistance payments. 

With thousands of Pennsylvania homeowners at risk of losing their most tangible connection to the American Dream, it is the responsibility of our state government to act to reinforce our framework crafted over the years to protect consumers in their quest for homeownership.  It is my sincere belief, and the belief of the many parties responsible for the development of this legislative package including consumer groups, banking/lending institutions and state banking regulators, our work will tighten that thread of homeownership which is the vital piece of that patchwork quilt which is Pennsylvania. 

State Senator Pat Browne represents the 16th Senatorial District and serves as Chairman of the Senate Finance Committee.