A New Mortgage Lender Law (Oh Yes, There Will be a Day!)

The financial chaos which is afflicting us will one day pass.  There are so many measures being taken to bolster the economy in general and the housing industry in particular, that it is inevitable that circumstances can only improve (don’t ask when!); and buyers will return to the housing market, one day.  It appears that mortgage loan rates will be very attractive in the coming months.

Perhaps you have been sitting on the sideline awaiting the opportune time to purchase a new home, and if you are a potential candidate for a mortgage loan in Pennsylvania, you should be aware of a new law, the Mortgage Loan Industry Licensing and Consumer Protection Law ("MLCP"), which became effective in November 2008.  For most people, obtaining a mortgage and buying a home is the biggest financial transaction in which they will ever be involved.

Principally the MLCP is intended to regulate much more rigidly the people with whom you often deal when you are seeking a home loan, especially the mortgage brokers.  The Act has very extensive educational requirements for brokers and has provisions which can affect the substantive terms of your mortgage loan.

For example, brokers' fees on the placement of a first or second mortgage loan may not exceed 3% of the principal amount being borrowed.  Most important, no part of these fees may be non-refundable if the loan settlement is not successfully completed.  A fee is deemed "fully earned" only when the borrower receives the funds.  (Note that out-of-pocket expenses such as appraisal fees, credit reports, title examinations, etc. are not deemed placement fees, and the borrower may have to reimburse the broker for them even though the loan is never completed.)

Another substantive change in the MLCP affecting the terms of the loan is a limitation on delinquency charges on second mortgages.  These charges may be imposed only if a payment is more than 15 days late, and may not exceed the greater of $20 or 10% of the delinquent payment.  Curiously, the only limitation imposed on first mortgage late payments is that the charge must be "reasonable".  Your guess is as good as mine, and there is regret that this ambiguity in the new Act exists.

Finally, the Act proscribes the compounding of interest on both first and second mortgage loans.

The penalties for violation of the Act are severe, so you should experience an improved lending environment when you do make the decision to enter the housing market and seek financing to make the purchase possible.  Do not hesitate to call us with any questions regarding this most important transaction.

-- Ken Butera