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Mortgage Bankers Association Goes After Lender Fraud
- If the lender finds the mistake, it can cure it without penalty. If the consumer discovers it, the lender would have to correct it and pay a "minor penalty." And if the lender refuses to act or if the borrower finds the lender's attempt unsatisfactory, the borrower can sue.
- Another protection that would be made available to consumers under the MBA plan would save their equity in case of foreclosure. Lenders would not be allowed to hold a final foreclosure sale without first ensuring the right of the borrower to list the property for sale.
"There should be a process that gives the owner the chance to save whatever equity they have before than the lender takes what's left," said Courson.
The improper practices the MBA wants outlawed include the following: steering borrowers to high rate/high fee lenders, intentionally signing borrowers to loans they can't afford, falsifying documents, making loans to the mentally handicapped, forging signatures, and changing loan terms at closing.
Also banned would be falsely identifying loans as lines of credit or open-end mortgages, increasing the interest rate when payments are late, charging excessive prepayment penalties, failing to report good payment histories to credit bureaus and failing to provide accurate loan balance and payoff information.
Noting that most of these abuses are already illegal under various federal and state statutes, the MBA says regulators should be fully funded and given the resources the need to more effectively enforce the laws.
But a federal prohibition also is necessary, said Henry Cunningham, president of Cunningham & Co. in Winston-Salem, N.C., and chair of MBA's state and local council, to "serve as a template for national standards."
The goal, Cunningham explained, is to "eliminate that patchwork of state regulations" that lenders operating in more than one state are required to follow.
The other portions of the MBA proposal deal with consumer education and counseling for prospective buyers.
"This is an intelligent, comprehensive approach that covers all the bases," Woodward told reports. "We've got to enforce, simplify and educate. These are the key cornerstones of what we're trying to accomplish."
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