The provision with the sharpest teeth allows homeowners to sue.
Rep. Joe Mullery, DFL-Minneapolis, says up to now people scammed by fast-talking mortgage brokers have had little recourse. With the new legislation, Mullery says, if you feel you've been wronged in a mortgage deal that drove you into foreclosure you'll have what he calls private right of action.
"You can bring a direct suit against the mortgage placement person. Not only can they sue them, the consumer will now have the right to get their attorney's fees paid if they win against the mortgage broker. They will also get the right to bring an injunction against that broker so that they don't do it to other people and they can also get their costs of investigation," he says.
The legislation also requires lenders to verify a borrower's reasonable ability to pay a given loan and it prohibits "churning" - the sale and refinancing of loans simply to generate commissions and fees without benefit to the borrower. Lenders will also be required to include taxes, insurance, and escrow when comparing loans and brokers will be required to act in the borrower's best interest.
The passage of several bills this session aimed at the foreclosure crisis is due in large measure to what's happening on the ground. Thousands of Minnesotan's have lost, are in the process of losing or soon will lose their home to foreclosure. Housing advocates argue many bought a house whose value was inflated by a crooked appraiser in league with a greedy mortgage broker.
The advocates also acknowledge many of the buyers who got in trouble were willfully ignorant or were attracted to deals which they thought would bring them a cash windfall. The foreclosure crisis has been building for years. A handful of lawmakers, attorneys and housing advocates warned that state and federal lawmakers needed to close lending loopholes, tell lenders to rein in their greed, and kick state and federal regulators into action.
Lobbying by the financial services businesses played a role in successfully deflecting action. But now most of the associations which represent them at least in Minnesota are on board with the new laws.
Sherrie Pugh Sullivan, who directs the Northside Residents Redevelopment Council in north Minneapolis where foreclosures are spreading like wildfire, says 600 families came to her neighborhood non-profit seeking help because of foreclosure in 2006.
She says the new state laws will reduce the number of new mortgage scams. But Pugh says there are hundreds of families in her area already locked into bad mortgage deals who will have problems in the near future.
"We really haven't hit the peak and so we actually think there's potentially another three years that we're going to see people coming through," Pugh says.
Another new law takes a run at stopping mortgage crooks before they get started. The Minnesota Commerce of Department will require mortgage companies to post a bond and do a background checks for people they hire. All of the new laws take effect August 1.
Rep. Joe Mullery is pleased with the action. But the attorney and six term lawmaker knows the people behind the fraud are clever and will inevitably devise other ways to take advantage of unsuspecting home buyers.