Concerned that high prepayment penalties on mortgage loans will lead
to an additional round of foreclosures in Colorado, Gov. Bill Ritter is
seeking aggressive implementation of the new Mortgage Broker
Registration Act he signed into law in June.
"Colorado continues to struggle with an exceedingly high foreclosure
rate, and my administration is working hard to protect homeowners and
communities," Gov. Ritter said. "Implementing this legislation is one
more important step. Solving this crisis will involve industry and
government working together."
The Mortgage Broker Registration Act includes four mortgage-fraud and
foreclosure-prevention bills signed by Gov. Ritter in June. The bills
are:
· HB 1322 (Marshall/Groff), "Mortgage Fraud Prevention Act"
· SB 85 (Veiga/Massey), "Protect Consumer Real Estate Transactions"
· SB 216 (Veiga/Marshall), "Mortgage Loan Acts Practices"
· SB 203 (Groff/Marshall), "Mortgage Broker Licensing"
Regarding the need for aggressive enforcement of the Mortgage Broker
Registration Act, borrowers are increasingly lured into adjustable
rate mortgage products that initially have very low monthly payments.
When their rates increase, they may find stiff prepayment penalties if
they attempt to pay off their loan by selling their home or
refinancing. Their only option is foreclosure. As a result, Gov.
Ritter requested a solution from Division of Real Estate Director Erin
Toll, who is charged with implementing and enforcing the new law.
Acting on the concerns of Gov. Ritter as well as those of consumer
groups and members of the legislature, Director Toll has issued an
emergency rule restricting prepayment penalties on mortgage loans. The
new rule prohibits prepayment penalties that extend past the
adjustment date of an interest rate, teaser rate or payment rate. The
borrower's payment virtually always significantly increases on the
adjustment date. The rule creates a presumption that a mortgage broker
has violated their duty of good faith to the borrower if they
recommend a loan product with a prepayment penalty that extends beyond
the adjustment date. The rule took effect Friday.
"Prepayment penalties can trap families in no-win situations where
foreclosure becomes the only option," said state Rep. Rosemary
Marshall, who sponsored mortgage-related legislation the past two
years. "I wholeheartedly support the Division of Real Estate's new
rule implementing the mortgage broker legislation I sponsored during
the last session. I believe it will help lenders and consumers keep
their mortgage contracts alive."
Since taking over the Division of Real Estate last year, Director Toll
has made tackling Colorado's mortgage fraud and foreclosure epidemic
the Division's top priority. "Along with our aggressive enforcement
actions against those who participate in unlawful actions that
encourage foreclosures, this is another step to attempt to stem the
wave of foreclosures," she said.
The Division's enforcement actions include imposing permanent license
revocations along with record fines against real estate appraisers and
real estate brokers who engage in activities leading to higher
foreclosure rates.
For more information, visit the Division's website at www.dora.state.co.us/real-estate
