According to a press release issued by Colorado Governor Bill Ritter's office today, Division of Real Estate Director Erin Toll (the subject of an earlier post) has issued an emergency rule that "prohibits prepayment penalties that extend past the adjustment date of an interest rate, teaser rate or payment rate. The borrower's payment virtually always significantly increases on the adjustment date. The rule creates a presumption that a mortgage broker has violated their duty of good faith to the borrower if they recommend a loan product with a prepayment penalty that extends beyond the adjustment date. The rule took effect Friday."
Although the press release refers you to the Real Estate Division's web site, that site contained no reference to the emergency rule as of 4:30 pm MST this afternoon. I assume that the rule will prohibit mortgage brokers licensed by the Division of Real Estate from recommending loans with such a feature.
Background on the rule can be found in Rocky Mountain News columnist John Rebchook's article from last Friday. Rebchook makes a couple of pertinent observations.
Now, lenders tell me many of these loans when [sic] away when the subrpime market drove off a cliff in August. These type of regulations, whether enacted as an emergency rule or adopted by the Legislature, always address future transactions. They can't be retroactive for loans that people now wish they had never inked.
If loans with these features are no longer being made, and the regulation cannot apply retroactively, then why the need for any such regulation, much less an emergency regulation? More useless grandstanding by a Governor and his minions to make it appear that "something is being done" to deal with a "crisis," when, in fact, nothing useful at all is being accomplished? You be the judge.