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January 18, 2008

Miller Offers Laws to Protect Home Buyers

A.G. asks Legislature to enact measures against mortgage lending fraud.

Des Moines. Attorney General Tom Miller is asking the Legislature for new measures that protect home-buyers from predatory lending and other forms of mortgage lending fraud.

Miller announced proposed bills that would require mortgage brokers to act in the best interest of borrowers, modernize consumer safeguards in the Iowa Consumer Credit Code, give Iowans a right to sue under the Iowa Consumer Fraud Act, and beef up state efforts to fight home mortgage lending fraud.

Miller also asked the Legislature to pass a bill to fight “mortgage foreclosure rescue fraud” – scams that prey on people facing foreclosure by asking them to pay hundreds of dollars for so called assistance or “rescue” from the danger of foreclosure.

“The problem is these ‘rescue scams’ just take people’s money and fail to do almost anything to help them avoid foreclosure,” Miller said at a news conference Friday at his office. “And they take precious funds from people who are vulnerable and who can least afford to be cheated. This is the definition of adding insult to injury.”

Dan and Patricia Potter, Des Moines residents who were the victims of a questionable foreclosure “rescue” scheme, joined Miller at the news conference. The Potters were in danger of foreclosure, and paid $795 to a company that claimed it would set up arrangements to help them stay out of foreclosure. But the company made no attempt to make the arrangements, and then insisted on another $500 payment. The Potter’s were able to recover about half of the $795.

“Foreclosure rescue scams are just starting to appear in Iowa,” Miller said. “It’s a symptom of the overall climate of an avalanche of foreclosures here and all over the country. We need this legislation to prevent the problem flaring up here as it has in many other places,” he said.

Miller said foreclosure rescue scams take money people desperately need to address their foreclosure situation, and they may cause people to delay authentic efforts to modify a mortgage and come to terms with lenders that the borrower can afford. “Some rescue scams specifically tell people not to contact their lender or loan servicer, and that can just make matters worse,” he said.

“The fact that we are seeing the rise of mortgage foreclosure rescue scams is just a symptom that more and more people are facing the risk of foreclosure,” Miller said. “We are concentrating today on two things: finding ways to help borrowers and lenders see if there can be modifications of loans so foreclosure can be avoided, and proposing laws that will prevent mortgage fraud that so often leads to foreclosure.”

          Miller’s legislative proposals and activity against foreclosures include:

  • Legislation to require a “mortgage broker duty of agency.” Some mortgage brokers have put their own interests ahead of borrowers’ interests. The legislation would require mortgage brokers to act in the best interests of the borrower.
  • Legislation to modernize the Iowa Consumer Credit Code and make it apply to transactions up to $75,000 (instead of the current $25,000 – a level set in 1974.)
  • Legislation to create a homeowners’ consumer protection fund with a $5 fee on every mortgage filed in the state. The funds would be used to fight home mortgage lending fraud and educate more consumers on how to avoid becoming victims.
  • Legislation to prevent “mortgage rescue fraud” schemes. The bill would prohibit up-front fees, give victims the right to rescind foreclosure consultant contracts, require enhanced homeowner disclosures, and provide for remedies.
  • Legislation to enact an “Iowa Consumer Rights Act.” Miller announced this major proposal on December 20, which would give Iowans a right to sue under the state’s Consumer Fraud Act – a right consumers have in every state except Iowa.
  • The mortgage foreclosure prevention project – and the Iowa Foreclosure Hotline. The Hotline, which was initiated by Miller in September 2007, is working to help borrowers and lenders determine if loans can be modified so that borrowers can make payments – and keep their homes. Lenders would have to agree to the modifications, which often is in their interest because foreclosure is so costly to all parties.

Miller said the Iowa Foreclosure Hotline, which is run by the Iowa Mediation Service, has received 6005 calls as of this time, and has opened 628 cases.

“This is an extremely important matter for us to focus on,” Miller said. “Iowa needs this legislative action. There is no more important consumer asset than people’s homes, and right now consumers are missing crucial protections that the Legislature can provide to them.”

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