Patrick proposes mortgage fraud law
He also aims to aid victims of schemes
Addressing Massachusetts' rapidly escalating number of home foreclosures for the first time, Governor Deval Patrick yesterday proposed tougher enforcement and penalties in the mortgage markets, including criminal prosecution of lenders and brokers who fraudulently induce borrowers to take out home loans.
The governor also supports giving financial aid to borrowers who are victims of such fraud and are at risk of losing their homes.
Patrick said he would soon file legislation to make mortgage fraud a crime and also threw his support behind other proposals introduced at the State House, including raising fees on mortgage brokers and lenders and using the money to hire more government regulators to scrutinize the industry.
The goal of these various efforts would be to "make sure people don't find themselves at risk of losing their home," he said.
Foreclosure notices filed against Massachusetts borrowers hit a record in 2006 -- 19,487-- and are on track to exceed that number in 2007, based on notices that were filed in the first quarter of this year, according to ForeclosuresMass.com, which tracks filings.
Moreover, Warren Group, a real estate research firm, reported this week that the number of homes in Massachusetts that were auctioned in foreclosure soared nearly 200 percent, to 3,118 in the first quarter, up from 1,069 during the same period a year ago.
"Behind these numbers are real families losing real homes," the governor said.
Federal regulators have identified subprime mortgages as the primary cause of rising foreclosures. These loans charge higher interest rates to customers with poor credit histories in order to compensate lenders for the greater risk of default by these borrowers. These mortgages typically have low, two-year introductory rates that make initial payments more manageable, but which critics contend induce people to buy homes they cannot afford.
When the introductory period ends on those loans, interest rates generally increase by several percentage points, driving up monthly payments by hundreds of dollars. Foreclosure filings follow once these borrowers are unable to make the higher payments.
Regulators, including the US Comptroller of the Currency and Massachusetts Commissioner of Banks Steven V. Antonakes, have said some brokers and lenders may have committed fraud when they sold such loans, either by not clearly explaining to borrowers the true costs of their mortgages or by falsifying income figures to ensure borrowers qualified.
But state law does not explicitly identify mortgage fraud as a crime, which Massachusetts Attorney General Martha Coakley has said makes it difficult to prosecute criminal complaints against unscrupulous lenders. Under current law, mortgage fraud is defined as a civil offense, which carry lesser penalties.
Kevin Cuff, head of the Massachusetts Mortgage Bankers Association, said his organization would support proposals to prevent problems in the subprime industry as long as they do not restrict "legitimate uses of the lending marketplace and the access to credit to deserving homeowners."
The most controversial measure may be financial aid for delinquent borrowers at risk of losing their homes. State Senator Jarrett Barrios, a Cambridge Democrat, and state Representative David Torissi, a Lawrence Democrat , have proposed a $10 million relief fund that only homeowners who are victims of fraudulent mortgages could tap into to refinance their mortgages at lower rates or other more favorable terms. Patrick indicated through a spokesman yesterday he supports the Barrios-Torissi measure.
Among Patrick's positions in the private sector was a two-year stint as a director of Ameriquest Mortgage Co., one of the nation's largest subprime lenders. Patrick said he was the point person for Ameriquest's board helping the company to reach a $325 million agreement in January 2005 with 49 states to settle charges that it defrauded low-income borrowers. Patrick was a civil rights lawyer for the Clinton administration in 1996 when the Justice Department sued Ameriquest's previous corporate parent, alleging discrimination.
More recently, Patrick acknowledged in February that he had called a top official of
Yesterday, housing activist Bruce Marks, chief executive of Neighborhood Assistance Corp. of America, said he would bring a group of subprime borrowers today to Patrick's office to ask for assistance.
Kimberly Blanton can be reached at blanton@globe.com. 
