Coakley
BOSTON (Legal Newsline) - Massachusetts Attorney General Martha Coakley announced on Thursday that she has filed new legislation in an attempt to set standards and mandate loan modifications for banks to help fight the mortgage foreclosure crisis.
The legislation - An Act to Prevent Unnecessary and Unreasonable Foreclosures - was filed in conjunction with Senator Karen Spilka and Representative Steven M. Walsh.
"The effects of the housing crisis have rippled through all sectors of our economy, and we need to continue to address the subprime lending which largely contributed to this crisis in order to appropriately stabilize our economy," Coakley said.
"We know that voluntary loan modifications will not prevent unnecessary foreclosures. This bill establishes standards to ensure creditors undertake commercially reasonable efforts to avoid unnecessary foreclosure."
By mandating loan modifications in certain circumstances, the bill seeks to halt additional foreclosures in Massachusetts.
The bill would require creditors to take commercially reasonable efforts to avoid foreclosure upon certain mortgage loans secured by homes that are occupied by the owners as their principal residences.
The loans must also contain risky features, such as interest-only loans, adjustable rate mortgages and loans with short-term introductory interest rates.
The legislation would also provide a safe harbor for creditors to comply with this requirement of commercial reasonableness.
The bill also forbids misrepresentations to courts concerning holder status and prohibits passing to third parties the costs of remedying prior improper foreclosures or absence of recorded assignments.
Additionally, it prohibits "junk fees" which are sometimes tacked on during foreclosure, and looks to end bribes, referrals and similar fees for foreclosure business.
Any violations of the legislation would constitute a violation of the Massachusetts Consumer Protection Act.
Since 2007, Coakley's office has brought predatory lending cases against subprime lenders Fremont Investment & Loan/Fremont General and H&R Block/Option One Mortgage Corporation. Her office has also reached settlements with Goldman Sachs and Morgan Stanley, two leaders in the industry, over securitizing subprime loans.
Coakley has also enacted regulations to prevent predatory lending and worked together with the Massachusetts Division of Banks to enact legislation that provides additional protections for borrowers facing foreclosure.