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State Banking Department Issues New Fraud Prevention Initiatives

Banking Department Taking Steps to Protect Consumers from Mortgage Fraud - Legislative Approval Needed Now to Strengthen PA Lending Laws

HARRISBURG, PA. -- (January 11, 2008) -- People shopping for mortgages or refinancing their homes will be better protected from fraud by a combination of the Banking Department's five new anti-fraud initiatives and approval of pending reform legislation when the General Assembly returns to Harrisburg next week.

Banking Secretary Steve Kaplan today said the five anti-fraud initiatives are critical to protecting consumers from predatory lenders.

"Pennsylvania consumers need more protection from mortgage fraud," Kaplan said. "Oversight of mortgage companies has improved dramatically under Governor Rendell's leadership. But, the OPFM case -- in which hundreds of homeowners, primarily in Berks and Lancaster counties, say they were mislead on their mortgages -- is proof that more protection is needed.

"The combination of legislative action now and changes at the banking department will go a long way to providing more of the protection consumers need," Kaplan said. "I hope the General Assembly recognizes the need to protect residents and makes mortgage reform a top priority when it returns to Harrisburg next week."

The department is backing six bills in the House (HB 1079-1084) and six in the Senate (SB 483-488) to combat abusive lending practices and protect consumers. The legislation was introduced last year. Four of the bills were passed unanimously by the Senate Banking and Insurance Committee in December. "A key component of mortgage reform is to expand the number of mortgages subject to Pennsylvania's laws," Kaplan said. "Because of dated legislation, some consumer protections do not apply to mortgages over $50,000. That's just too low. Of the bills before the General Assembly, HB 1084 and SB 483 are critical because they raise the cap to $200,000 and include inflation adjustments for the future. This change would give the department greater power that could help prevent situations such as happened in the OPFM case."


The banking department plans to implement protections that would prohibit mortgage brokers from exclusively receiving notifications from lenders on behalf of consumers.

"I personally met with representatives of the 800 homeowners affected in the OPFM case and it is clear that if they had received notices from lenders earlier, they would have been better armed to prevent this misfortune," Kaplan said.


Another banking department initiative would make it easier for officers and employees of mortgage companies to report suspicious activity or financial difficulties without fear of liability or adverse employment actions.

"Consumers who rely on lenders for something as important as their homes should be comfortable knowing that there is nothing that would stop an employee of that company from bringing suspicious activity to the banking department's attention," he said.

Over the next several months, the department will also begin to survey samples of some mortgage companies' customers during examinations; more closely scrutinize affiliated business arrangements; and place greater emphasis on internal business controls.


The banking department plans to work closely with other states and federal agencies to identify and implement initiatives to better detect Ponzi schemes, like OPFM, and other forms of fraud.


"Representatives of the more than 800 homeowners affected by the OPFM bankruptcy shared moving personal stories about how this crime affected their lives," Kaplan said. "I want to do everything possible to help create opportunities for homeowners to work out agreements with their lenders and ensure that they do not have to worry about losing their homes."

Over the next several months, the banking department will facilitate dialogue between homeowners and lenders.

"The unfortunate experience of these homeowners could provide valuable information that will help us prevent other consumers from falling into the same scheme," Kaplan said. "It is clear that government action is needed now. At the same time, the banking department will continue its aggressive public education initiatives because the best defense against fraud is a well educated consumer."

The banking department Web site allows consumers to search for state-licensed mortgage professionals, and it's financial education Web site, Your Money's Best Friend, provides a variety of resources to help consumers learn about the mortgage lending process so they can recognize and avoid potential fraud.

In addition to its ongoing efforts to promote financial education, the department plans to expand outreach and education to consumers about mortgage lending and how they can avoid fraud and identify scams when seeking a loan.

SOURCE: The Pennsylvania State Banking Department
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