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Mortgage Lending

In the last year, families all around Washington State lost their homes to foreclosure.  In fact, over 30,000 homes were lost – an increase of 70%. In the next few years, over 100,000 more families may face foreclosures unless state lawmakers pass reforms that provide relief to homeowners. 

Danger Ahead: The Next Foreclosure Crisis

The worst of the foreclosure crisis is yet to happen. Over the next two years, Adjustable Rate Mortgages will adjust and go up from low to very high rates of interest, making it nearly impossible for working families to make their mortgage payments.

  • Washington families are already on the brink of foreclosure- Over 100,000 Washington families were already past due on their mortgages as of June 2009 (Center for Responsible Lending).
  • Another crisis would devastate working families- Washington families will face over 132,000 foreclosures in the next three years costing neighbors a staggering $19 billion in lost home equity, over $9,000 per home affected. (Center for Responsible Lending).

Protect Consumers: Establish Fair Loan Modification Standards

Loan modification is a lifeline for homeowners facing foreclosure. But without loan modification standards and an opportunity to meet with lenders on a level playing field, working families can’t access that lifeline.

Between the first day of the 2010 Legislative Session and the middle of March, thousands of homeowners will potentially lose their homes. This will further drag our economy and the ability of state and local governments to provide essential services. A solution is necessary this year.

The Legislature should pass a foreclosure prevention bill as early as possible to ensure better security for Washington homeowners.

Washington needs standards that address the foreclosure crisis:

  • Protect consumers by establishing universal standards for all lenders so homeowners are not harmed by lending practices that contributed to creating the foreclosure crisis.
  • Require lenders to participate in good-faith mediation to give homeowners the opportunity to stay in their home with a mortgage rate they can afford.
  • Ensure accountability in the foreclosure process.

Watch Out for Predatory Lending Practices

Here are brief descriptions of some of the most common abusive practices:

Loose qualifying standards on high-risk loans: Subprime lenders often fail to consider a family’s ability to repay adjustable-rate mortgages after the introductory period is over, and in some cases do not even require standard proof of income.

Excessive Fees Points and fees are costs not directly reflected in interest rates. Because these costs can be financed, they are easy to disguise or downplay.

Loan “flipping”: A lender “flips” a loan by refinancing it to generate fee income without providing any ultimate benefit to the borrower. Flipping can quickly drain home equity and increase monthly payments.

Prepayment penalties: Homeowners with higher-interest loans have an incentive to refinance as soon as their credit improves, but the majority of subprime mortgages carry a prepayment penalty– a fee for paying off the loan early.

Kick-backs to brokers (yield-spread premiums): A “yield-spread premium” is extra cash brokers receive from lenders for delivering loans with inflated interest rates. Yield-spread premiums give brokers an incentive to steer families into higher cost loans, even when the family could qualify for a mainstream loan.