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Educational Consumer Tips

Mortgage - New Laws

Author: Better Business Bureau
Published:

This report is general in nature and is not intended as a reliability report on any company, service or product.

Pennsylvania recently enacted new laws and regulations to protect homebuyers and reduce foreclosures. Existing laws required the licensing of certain mortgage companies and brokers.

As of January 1, 2009, all salespeople working for mortgage companies must be licensed by the Pennsylvania Department of Banking. Companies and their employees must also register on the new Nationwide Mortgage Licensing System (NMLS), a web-based system used by state regulators to monitor the industry.

A mortgage company's license should be displayed prominently in its office and copies of employees' licenses should also be available. You can also verify the status of a license by calling the Department of Banking at 1-800-PA-BANKS or by visiting www.banking.state.pa.us.

Starting March 20, 2009, mortgage companies must begin using a new disclosure form that clearly states whether a loan has any of the following features: adjustable interest rate, prepayment penalty, balloon payment, negative amortization (monthly payments so low that they do not cover the principal and interest on the loan) and whether the monthly payment includes property taxes and hazard insurance. Any one of these features can greatly impact the overall affordability of a mortgage.

Also effective March 20, mortgage companies must obtain proof of income, fixed expenses and other relevant information in order to evaluate a borrower's ability to repay an offered loan. This requirement seeks to restrict low- and no-documentation mortgages in which applicants do not have to provide such information.

New legislation signed in July 2008 bans prepayment penalties on loans of $217,873 or less, a figure that will be adjusted for inflation every year from now on. A prepayment penalty is a fee, usually a percentage of the outstanding loan balance, assessed for paying off a mortgage early or refinancing.

Pennsylvania has also increased its oversight of real estate appraisers and increased fines for misconduct. Inflated appraisals can be used to induce a consumer to borrow more than the home is actually worth.

The new legislation also gives consumers access to more information about enforcement actions, fines and other penalties issued by the Department of Banking. An up-to-date list of issued and final enforcement actions is available at www.banking.state.pa.us.

BBB maintains a free online database with more than four million company reports on businesses including mortgage companies at www.bbb.org. Additionally, consumers shopping online should look for the BBB seal on Web sites and click on the seal to confirm its legitimacy. And of course, consumers can always contact BBB directly at 412.456.2700 with questions, concerns and complaints.