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New 'Predatory' Laws Take Aim at Servicing Practices.
Increasingly, "predatory lending" laws that are being passed by states include prohibitions on specific servicing practices as well as onerous penalties that apply not only to "high-cost" loans but to other home loans as well.
In essence, the fervor to penalize lending abuses is now spilling over to the servicing arena, with results that could cause some mortgage servicers to stop doing business in states with particularly burdensome laws.
Attorney Laurence Platt of Kirkpatrick & Lockhart, Washington, D.C., said many of the state laws emerging over the past few months include two tiers of provisions, one pertaining to "high-cost" or "high-risk" loans and another applying to all home loans.
The servicing prohibitions, and the large penalties, are being included in the portion of the laws that apply to all loans.
For instance, in the state of Arkansas, a loan could be voided entirely if the servicer charged a $25 payoff fee.
Mr. Platt says there is no rational relationship between the risk to the consumer and the size of the penalties under the new laws. Rather, they seek "to punish to the point of torture servicers that make a mistake."
Illinois, New Jersey and Arkansas are among the states that have passed predatory laws that impose punitive penalties for loan servicing violations.
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Source: HighBeam Research, New 'Predatory' Laws Take Aim at Servicing Practices.