Patrick files bill to help home buyers
Law would offer safeguards against riskier mortgages
Governor Deval Patrick filed legislation yesterday intended to steer financially limited home buyers away from high-cost, adjustable-rate mortgages that are behind the sharp rise in delinquent loans and foreclosures sweeping many Massachusetts communities.
Under the governor's proposal, borrowers applying for adjustable rate mortgages that come at high interest rates, so-called subprime loans, must first sign a form offered by their lender confirming they do not want a fixed-rate version of the mortgage.
The provision is designed to prompt lenders to provide clear disclosure about the loans they offer, and to have borrowers learn more about the full consequences of adjustable-rate mortgage s with very low "teaser" rates. These rates jump after two years, raising monthly payments by hundreds of dollars, causing some homeowners to fall behind and even lose their houses. Regulators and subprime borrowers themselves said many borrowers did not realize the full cost of such loans at the time they took them out, and only learned when a new payment schedule arrives.
Patrick would also require borrowers applying for adjustable loans at subprime rates to present proof they have attended a home - buyer counseling course.
Adjustable-rate subprime mortgages were the single biggest source of the record numbers of foreclosure filings -- 19,487 -- in 2006 and rising rates of foreclosures this year, regulators said.
"We're not looking to ban adjustable rates," said David Cotney, chief operating officer for the Massachusetts Division of Banks. Borrowers who do want subprime adjustable-rate loans, he said, "have to opt out of fixed" mortgages, "and they have to go to counseling so they know what they're doing."
Patrick said in a statement, "We must help homeowners facing foreclosure."
Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said the provisions would be an unnecessary complication to wealthy borrowers or business owners who traditionally used these mortgages as a tool for managing finances. And requiring that borrowers take home - buyer courses would be "particularly onerous," he said, because it could delay home purchases.
"Subprime lenders are going to disagree with this because there's going to be a time constraint" in processing a mortgage, he said. Enforcing whether a customer has taken a home - buyer course would be extremely difficult, he said.
Kimberly Blanton can be reached at blanton@globe.com. 