The N.C. Office of the Commissioner of Banks has proposed new regulations that would stop foreclosure once a homeowner asks for a loan modification.
Currently, lenders simultaneously pursue foreclosure while working with homeowners who are seeking to modify the terms of their loans to make payments manageable. It's a situation where time frequently isn't on the homeowners' side.
"We want to make sure we are avoiding foreclosures if there is any possibility that people can stay in their house," said deputy commissioner Mark Pearce.
A second proposed rule would require the mortgage servicer to respond promptly and clearly to homeowners when they ask for mortgage assistance. The banking commission has found that such communication failure can lead to foreclosures.
Mortgage companies still could foreclose on homeowners under the rules. But first they would have to notify homeowners what they need to do to qualify for loan modification and, if the homeowners are rejected, the company would have to explain why, Pearce said.
"We think these are very important steps to ... provide protection to consumers in North Carolina," said Chris Kukla, senior counsel for government affairs at the Center for Responsible Lending in Durham.
However, the rules, if approved, would not be implemented before April 1. Nor would they apply to all mortgage servicers. Only mortgage brokers and other lenders that aren't banks or savings and loans would have to comply. About 875 mortgage companies are licensed to do business in the state.
Still, at the height of the boom in subprime mortgages, 75 percent of the mortgages in the state were made by mortgage brokers, Kukla said.
The state-chartered banks regulated by the banking commission are mostly community banks and haven't been a problem when it comes to foreclosures, Pearce said.
Federally chartered banks - including Bank of America, Wells Fargo/Wachovia, Chase and Citigroup - are beyond the commission's authority.
Public comments on the proposals can be submitted through Jan. 2; a hearing will be Dec. 8 at 9 a.m. at the commission's office at 316 W. Edenton St. in Raleigh.
Other rules proposed by the commission include:
Prohibiting homebuilders from tying discounts to mortgages from a specific lender. That practice, according to the commission, eliminates competition and allows the homebuilder's lender to charge higher rates or fees. The proposal would not bar homebuilders from offering discounts.
Requiring lenders to provide data comparing the cost of complex mortgage products with a standard mortgage.
Barring commissions that encourage loan originators to offer borrowers more expensive mortgages than they can afford. Mortgage brokers offering subprime loans already are barred from receiving this type of compensation; this measure would extend the ban.
