Trying to Stem Foreclosures, Virginia Legislators Crack Down on Unethical Mortgage Brokers

By Anita Kumar
Washington Post Staff Writer
Thursday, March 5, 2009

RICHMOND -- Sandra Berrios was at home, cooking dinner for her sons, when she received a call from a mortgage broker offering to refinance her four-bedroom townhouse in Lorton.

She accepted after he promised her a lower interest rate on a 30-year fixed mortgage. It wasn't until months later that she realized she was paying only the interest on an adjustable-rate mortgage in monthly installments that did not include taxes or insurance. Berrios, 39, quickly fell behind on the bills, leaving her in danger of losing her home.

State legislators concerned about such behavior by mortgage brokers have approved regulations to crack down on the industry this year.

"A lot of people were getting in these foreclosures because they had dealt with unethical brokers who had steered them into high-risk loans," said Del. Jennifer L. McClellan (D-Richmond), who introduced one of the bills. "Most people who go to brokers trust that the lender is going to find a loan that is in their best interest."

Lawmakers trying to curb the state's escalating foreclosure rate passed several bills during the 45-day legislative session, which ended last week, to try to keep homeowners in their houses. It was one of the few issues that found widespread agreement this year in a divided General Assembly.

Some of the bills had been introduced in previous sessions but did not get much attention until the national housing crisis unfolded.

"It really took the national spotlight to get these bills passed," said Helen O'Beirne, director of the Center for Housing Leadership at Housing Opportunities Made Equal, a nonprofit agency in Richmond.

Foreclosure rates have spiked across the United States, fueled by a collapsing real estate market and risky lending schemes, such as subprime loans designed for people with blemished credit records or insufficient income to support the borrowing.

Gov. Timothy M. Kaine (D) formed a task force to address the unprecedented number of foreclosures in Virginia. On Wednesday, President Obama released guidelines for a national foreclosure prevention program.

Maryland lawmakers passed a sweeping package of changes last year to help struggling homeowners and also overhauled state regulation of the mortgage-lending industry. The timetable for foreclosures was extended from 15 to 150 days, and many mortgage schemes are now subject to criminal prosecution. Additionally, prepayment penalties and other transactions in which homeowners were tricked into signing over their homes to third parties were made illegal.

In Virginia, the foreclosure rate has steadily increased. As of Sept. 30, a record 21,000 homes in the state were in foreclosure, about 11,000 involving subprime loans.

Lawmakers introduced some of this year's bills to comply with federal legislation designed to curb abusive lending practices. Others pushed by former state attorney general Robert F. McDonnell, the Republican nominee for governor, authorize the state to investigate lender fraud, make violations punishable by a $2,500 fine, mandate that companies claiming to help homeowners collect fees only after completing their work and add mortgage lenders to those regulated by the Virginia Consumer Protection Act.

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