Washington at the forefront of solutions for the subprime mortgage crisis

OLYMPIA – U.S. Treasury Secretary Henry Pauslon pledged today to toughen rules for mortgage brokers, but thanks to the Washington Legislature Gov. Gregoire already has several measures on her desk that will toughen the rules for mortgage brokers in Washington.

Sen. Brian Weinstein, D-Mercer Island, chair of the Senate Consumer Protection & Housing Committee, championed measures that help prevent subprime disasters, protect borrowers from unscrupulous brokers, and defend homeowners who are in danger of foreclosure.

“The subprime mortgage crisis showed too many loopholes in the system. I introduced bills to close these loop holes and impose a fiduciary duty on mortgage brokers in Washington,” said Weinstein.

Senate Bill 6381 imposed a fiduciary duty on mortgage brokers – the legal responsibility for a mortgage broker to act in the best interest of the borrower. This is the same legal duty financial advisers, accountants, and trustees owe to their clients.

“Seventy percent of today’s home loans are generated by mortgage brokers who claim to find the best loan rate for the borrower. But ‘best’ often means the best loan rate for the brokers’ bottom line, not the borrowers,” Weinstein said. “This bill ensures borrowers get the mortgage with the most favorable terms possible.”

Kim Justice of the Poverty Action Network said this is welcome aid for consumers.

“Sen. Weinstein is the champion on consumer protection in the Legislature,” Justice said.

“The passage of his mortgage broker bill will go a long way in restoring trust in the lending industry. But, most importantly, it will ensure someone is looking out for a borrowers’ best interest when they are making the biggest investment of their lifetime.”

Another bill prime-sponsored by Weinstein, Senate Bill 6471, closes loopholes in the Consumer Loan Act and regulates over 300 previously unregulated mortgage brokers. These brokers must now follow the same ethical standards as other lenders in their industry.

House Bill 2791 protects homeowners facing foreclosure from profiteers by regulating “distressed home consultants.” When homeowners are in danger of losing their home, many are approached by consultants who offer to help save their homes. In reality, however, the deals they offer can swindle people out of their homes.

“This legislation puts an end to the scam artists preying on those in foreclosure,” Sen. Rodney Tom, D-Bellevue, said. “There’s no greater crime than stealing from those who are already in financial distress. We’re putting an end to this despicable behavior.”

Columbia Legal Services, which provides legal assistance to low-income and special needs people and organization in Washington, lobbied hard for the bills.

“All of these bills represent crucial pieces of legislation to deal with the subprime lending crisis. Imposing a fiduciary duty on mortgage brokers will raise the bar so that the law meets the expectation of borrowers,” Bruce Neas said. “The foreclosure rescue scam measure puts Washington in the top tier of states responding to the aftermath of the subprime mortgage crisis.”

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