LANSING – State Representative Shanelle Jackson (D-Detroit) and other House Democrats today unveiled the Michigan Home Loan Protection Act, a comprehensive legislative package that cracks down on predatory mortgage-lending practices and strengthens consumer protections in the face of the collapsing subprime mortgage market.
"Being forcibly removed from one's home is one of the most stressful and devastating events a family can experience," said State Representative Bert Johnson (D-Detroit). "Predatory home loans jeopardize entire communities and hamper Michigan's economic recovery. Our legislation will hold lenders accountable and help reverse the skyrocketing rate of foreclosures in our state."
The Michigan Home Loan Protection Act will:
- Ban predatory lending practices, such as making loans without requiring borrowers to prove their ability to repay the loan, encouraging borrowers to default, charging excessive late fees and charging fees for a payoff statement.
- Protect homeowners' equity by prohibiting home refinancing to generate fees for the lender unless there is a tangible net benefit to the borrower.
- Protect consumers from being steered toward high-cost loans when they would otherwise qualify for a traditional loan.
- Prohibit the financing of any points and fees that hide the true costs of the loan.
- Prohibit prepayment penalties.
- Require vulnerable borrowers to receive independent counseling from a certified third-party, non-profit counselor.
- Give injured and aggrieved homeowners legal recourse so they can independently enforce these consumer protections against unscrupulous lenders.
According to federal data, subprime borrowers are often steered by brokers into signing Adjustable Rate Mortgages (ARMs) and are not given the option of fixed-rate loans, nor informed of the inherent risks of ARMs. Some lenders and brokers write loans they know borrowers cannot afford just to collect the fees and commissions. Federal home-loan agencies Fannie Mae and Freddie Mac estimate that 30 to 50 percent of all borrowers with subprime loans could have qualified for more affordable mortgages.
According to the latest figures from RealtyTrac, an Irvine, Calif.-based online foreclosure firm, Michigan ranks third in the nation in foreclosures, with 13,979 foreclosure filings in July, up 39 percent from June and up 130 percent from July 2006.
The North Carolina-based Center for Responsible Lending found that, in general, lower-income families tend to pay more for the exact same consumer product than families with higher incomes. According to the Brookings Institution, if those lower-income families could pay less for their mortgages and reduce their cost of living by just 1 percent, it would add up to billions of dollars in new spending power for these families. This would enable lower- and modest-income families to save for, and invest in, income-growing assets such as homes and retirement savings. It would also allow them to pay for critical expenses for their children, such as education and health care.
Majority Floor Leader Steve Tobocman (D-Detroit) noted that foreclosures affect every community in Michigan – not just low-income neighborhoods.
"Foreclosures don't just hurt individuals and families, they hurt entire neighborhoods and communities by leaving homes abandoned and lowering property values," Tobocman said. "In fact, reckless lending has devastated the stock market and threatened our entire economy. We have heard from consumers, and we are taking action to protect them."
Jackson said that House Democrats will not stand by and allow unscrupulous mortgage companies to take advantage of homebuyers just so they can line their own pockets.
"Stable homeowners lead to safe, stable communities, and we must do everything we can to keep families in the homes that they purchase," Jackson said. "The Home Loan Protection Act will help stop the abusive practices that unfairly make homebuyers vulnerable to being forced out of their homes. House Democrats will keep fighting to make sure that every Michigan family has access to an affordable home of their own."