PA Gov. warns on ‘teasers’, ‘payment spikes’

From the Pocono Record:

‘Teaser’ rates on mortgages expiring

Gov. Ed Rendell urges homebuyers with adjustable rate mortgages to prepare for likely steep jumps in monthly payments and to tap state resources if they need help keeping their homes.

Adjustable rate mortgages offer low introductory interest rates — typically for the first two or three years — followed by a sudden interest hike based on an index. ARMs accounted for more than one-third of all loan originations in mid-2005, according to the Mortgage Bankers Association.

“A vast number of homebuyers entered into adjustable-rate mortgages in 2004 and 2005 and the low introductory ‘teaser’ rates on those loans are beginning to expire,” Rendell said in a statement.

“Many working families are facing tough situations as their monthly payments increase,” he added. “Homeowners with adjustable-rate mortgages should contact their lenders to confirm when, and by how much, their payments will increase.”
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In addition to issuing loans with adjustable rates, some lenders also assess prepayment penalties if buyers try to pay off the loan early by refinancing into a new loan. This makes it difficult for some consumers to seek an alternative.

“We want to change the regulations in Pennsylvania to require mortgage originators to qualify borrowers under the fully-indexed rate and amortized repayment schedule,” Rendell said. “This would help protect consumers from being put into loans they can’t afford to pay back. There also needs to be clearer disclosures to help borrowers better understand their loans.”
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The department supports six bills in the General Assembly aimed at curbing abusive lending practices, increasing oversight of lenders and brokers through expanded licensing, and improving state access to foreclosure data.

Those bills, in the House Commerce Committee, are expected to be considered when the House returns after its summer recess, said Stephen Washington, chief of staff to Rep. John Siptroth, D-189. Siptroth is a member of that committee and prime sponsor of one of the bills.