Ogunquit News
Legislator strives to protect Maine consumers from bad loans
By Melissa Wood
OGUNQUIT and YORK - The numbers are scary.
Not only does Maine rank 17th in the nation in home defaults and foreclosures, but the number of people losing their homes because of loans they can't afford keeps climbing higher and higher.
In April foreclosures were up 62 percent from the previous April.
"To me the fallout is just beginning," said Kimberly McLaughlin, a mortgage broker from Yarmouth.
She said homeowners often take out loans with low introductory rates where, for example, they only pay on the interest for the first 10 years. But when those 10 years are up, the homeowner then faces a dramatic increase in a mortgage payment he or she can't afford to pay while, at the same time, since the homeowner hasn't paid any of the loan's principal balance, the amount borrowed has actually increased as well.
"When we're in a flat market that's just a recipe for disaster because now you don't have the option to sell your home," said McLaughlin.
In an effort to curb this and other so-called "predatory" loan practices, McLaughlin is working to change the law.
She joined Rep. Dawn Hill, who represents Ogunquit and part of the town of York, at Norma's Restaurant in York on Wednesday morning, May 16, to introduce the Maine Homeowner Protection Act, cosponsored by Hill and Glenn Cummings, D-Portland, to about two dozen real estate appraisers at the Appraisers' Network Meeting.
Legislative Document 1869 requires lenders to sell consumers loans that meet their ability to pay and bans the practice of loan "flipping," which is when lenders convince borrowers to refinance without any benefit to the consumer but generating high refinance fees for the lender. It also restricts how much consumers can be charged in fees that McLaughlin called a disgrace.
"If someone can only afford a $100,000 loan, can they afford to pay five-grand (in fees)?" she asked.
Another aspect of the act is that it requires financial counseling to help people about to take out high-risk loans understand what's at stake. A couple of appraisers said they recalled driving up to homes where the owners refinanced and seeing brand new cars or boats - meaning that the homeowners are essentially paying 30 years for what should probably be a five-year loan.
"Hopefully the counselor gets a hold of them and says let me see your paperwork - what are you doing?" said McLaughlin.
Hill said the act is currently in a work session within the Committee on Insurance and Financial Services, which at this point could change language, carry it over to the next session or vote whether to recommend the bill to the rest of the Maine Legislature. Both Hill and McLaughlin were heading back to Augusta directly after the 8 a.m. meeting to be available to answer any questions the committee members had about it.
Hill asked the group to remember a time when they were starting out and wanted to buy their first home but then sat down to read the loan documents and realized that they asked for their "first born." She said the act is to protect them and other Mainers, including senior citizens, who are most susceptible to the predatory practices.
"We do not want them to become victims," she said.
