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HARRISBURG, Pa. – Pennsylvania has the dubious distinctions of having one of the highest foreclosure rates in the U.S. and Secretary of Banking Bill Schenck wants to do something about that. Backed by a report he presented to the Pennsylvania General Assembly March 16, Schenck announced his intention to press for new laws and regulations aimed at diminishing the surge in home foreclosures in Pennsylvania, many of which have been due to unscrupulous lending practices and subprime lending, he said. A statewide foreclosure report- “Losing the American Dream” – that the Pennsylvania Department of Banking was directed to conduct by House Resolution 364 found that on a statewide basis, foreclosures in Pennsylvania have “skyrocketed.” The state’s prime loan foreclosure rate of 0.85% ranks it as ninth highest in the U.S., and its subprime foreclosure rate of 11.9% makes Pennsylvania the fourth highest in the country. It is estimated that Pennsylvania has experienced a 14% increase in Sheriff sales in the last 3 years. In 2002, subprime lenders made 9.9% of all loans originated in Pennsylvania, and 60% of foreclosure filings were for subprime loans. That’s despite the fact that Pennsylvania is the only state to have a program – the Commonwealth’s Homeowner’s Emergency Mortgage Assistance Program (HEMAP) – designed specifically to help homeowners in danger of losing their homes. In addition, consumer bankruptcy filings in Pennsylvania increased over 200% from 1990-2001. Schenck stated in the report that, “While government cannot intervene in some of the traditional reasons for mortgage foreclosures such as job loss, divorce, or medical expenses, it can reduce abusive lending activity and, subsequently, reduce the number of foreclosures. A number of administrative and legislative actions, when enacted, could have an immediate impact on abusive lending practices in Pennsylvania.” Schenck attributed the prevalence of subprime lending in the state to borrowers’ lack of financial information and knowledge “needed to make informed decisions about alternatives to high cost subprime loans.” The Banking Secretary wrote that: “In yesterday’s market, if a homeowner had financial difficulty that made him unable to pay all his debts, he was often able to stop paying his unsecured debt, cut back on some unnecessary living expenses, and thus, afford his mortgage payment. His actions were not without consequences, to be sure. His credit card privileges would have been terminated, he may have had his car repossessed, and – eventually – he may have been forced to file bankruptcy. But, in all likelihood, his home would not be lost. In today’s market, however, his home is in jeopardy because it was probably used to secure the car purchase (or more likely, the purchase of more than one car), refinance the credit card debt, and the like. Financial difficulty for today’s homeowner is far more likely to result in home foreclosure than in the past.” Schenck said the Department of Banking is committed to reducing mortgage foreclosures in Pennsylvania. Some steps have already been taken – in 2003 the Department of Banking reorganized its operations to become a more effective enforcement agency and to position it to have a stronger profile with the industries it regulates and to be able to provide more consumer protection. The Department of Banking is also recommending that the state General Assembly strengthen certain laws and regulations that protect consumers. Several laws enacted to protect consumers have not kept pace with the markets and activities they were intended to cover, Schenck stated. Other `action steps’ Schenck is recommending include: * expansion of consumer education operations of the Department of Banking, the Office of Financial Education, and the Pennsylvania Housing Finance Agency; * the Department of Banking will issue new policies based on its statutory authority, that will be drafted as regulations and, with the support of the General Assembly, increase the Department’s authority to oversee lenders; * the Department will institute a “best practices” program for mortgage brokers, lenders and services, and ask for voluntary compliance by the industry, including those institutions that aren’t regulated by state law because of federal preemption; * the Department recommends the General Assembly study several other issues to slow the rate of residential mortgage foreclosures such as providing pre-closing counseling for consumers of high cost, subprime loans and establishing an Emergency Fund for the Victims of Abusive Lending. -

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