State Lending Laws Can Be Stricter Than Federal Law
Chances are, if you live in the U.S., you live in a state with strict laws about predatory lending and mortgage practices. Many states have stricter laws even than the federal government. One such state is Vermont. While borrowers in other states were signing dangerous mortgage documents and putting themselves in a financial hole, Vermont residents were more aware due to the strict mortgage laws in that state.
For instance, in Vermont, mortgage lenders have been required since the 1990s to warn customers when their mortgage rates were high relative to the market. And, this is a big and, mortgage brokers were held responsible if they had a high number of loan defaults. That could be one reason why Vermont has had one of the lowest foreclosure rates in the nation.
Vermont also outlaws prepayment penalties. Period. A lender cannot charge a borrower for paying off the loan early. Now that’s a good law. If other states followed suit and outlawed those penalties then there would be fewer foreclosure rates and homeowner mortgage issues.
In Texas, they’ve outlawed prepayment penalties and balloon payments. Again, laws that are stricter than federal lending guidelines.
What does all this mean to a loan modification attorney? It means that if you live in one of the states with stricter laws than the federal government on lending practices, you’ve got a whole new set of case law to get through. That case law is just as important when conducting your loan document review.