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State strengthens regulation of mortgage lenders

Posted on February 26 By MLP Blog

The Oregon Department of Consumer and Business Services on Thursday announced changes to its regulations of the mortgage lending industry.

The state agency said the changes - which include adopting new rules and guidelines and increasing education and enforcement efforts - are in response to consumer and industry concerns.

The agency's Division of Finance and Corporate Securities adopted new rules, effective Thursday, that implement more stringent education requirements for mortgage professionals and ensure that mortgage lenders are effectively supervising their loan originators. A complete list of the rules can be found on the agency's Web site at dfcs.oregon.gov.

The Division of Finance and Corporate Securities also is addressing the increasing number of nontraditional loans offered to Oregonians by adopting guidelines for state-regulated lenders. The guidelines - which are based on federal guidelines for national banks and institutions - outline best practices related to two types of nontraditional loans: "payment option" and "interest only" adjustable rate mortgages. With these loans, borrowers exchange lower payments during an initial period for higher payments later. For example, in an interest only mortgage, a borrower only pays interest at first but eventually must pay interest and principal each month. As a result, the payment could increase substantially - even doubling in some cases.

"Nontraditional loans appeal to consumers who may not qualify for traditional loans, and these borrowers often do not understand the risks they may face," David Tatman, administrator for the division said in a statement. "These guidelines will protect those borrowers by directing lenders to clearly explain the implications of the loans and evaluate the borrower's ability to make monthly payments even when the loan rates are adjusted after a few years."

The guidelines, which have been adopted by 19 states, will become part of the method used by examiners and investigators during compliance reviews of state law and regulation.

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