New mortgage industry regulations explained

Real Estate Weekly, Dec 8, 1993

The New York State Legislature this fall passed amendments to the state's banking code which will provide greater supervisory control over mortgage brokers and, according to one local broker, increased consumer protection for current and potential homeowners.

"The state's action should go a long way towards providing structure to what has been a laissez faire industry," said John Squadrito, founder of Massapequa Park-based Brofco Mortgage Corp. "In the past, the only regulatory control over the industry was a banking department visit every three years. Now, with guidelines to be followed and penalties that can be applied, mortgage brokers will be held more accountable for their practices, which should result in better protection for consumers."

A key provision of the amendments recently signed into law by Governor Mario Cuomo requires mortgage brokers, as well as mortgage banks, to fully disclose all conditions of mortgage rate lock-ins, to list all documents and conditions required to close the loan, and to provide written notice to a mortgage applicant no later than 12 business days prior to the expiration date of the lock-in.

"Disagreements over lock-in rates are among the complaints most often heard by the state," said Squadrito. "With the new amendments, the state has taken steps to increase consumers' awareness of the terms and conditions they are being offered. Now, applicants will know exactly what they need the first time they sit down with a broker and they'll be advised of the schedule throughout the mortgage process."

To further protect the consumer, the new law gives the state's superintendent of banks the authority to require a $25,000 surety bond from those mortgage brokers who have engaged in a pattern of misconduct evidenced by valid consumer complaints. "In those cases where a bond is required, the superintendent has the ability to use that money to reimburse any customer who has been wronged by that broker," said Squadrito. "This should serve as another impetus for mortgage brokers to serve their customers in a professional manner."

The new laws also give the superintendent discretionary power to refuse to register a mortgage broker who has been convicted of a felony.