Colorado Division of Real Estate Director Erin Toll issued an emergency ruling restricting prepayment penalties on adjustable-rate mortgages, the Governor’s office announced Monday.
Toll’s move came in response to concerns from Governor Bill Ritter that costly prepayment penalties would lead to increased foreclosures in the state as scores of adjustable-rate mortgages are due to reset in the months ahead.
“Along with our aggressive enforcement actions against those who participate in unlawful actions that encourage foreclosures, this is another step to attempt to stem the wave of foreclosures,” Toll said.
It’s been argued that mortgage brokers violate their responsibility to act in good faith on behalf of the borrower if they recommend a loan program with a prepayment penalty that extends beyond the mortgage rate adjustment date.
Individuals who violate the new rule could face disciplinary actions including fines, revocation of their license, refusal to renew a license, and restitution for any financial losses.
The temporary ban could become a permanent rule effective March 1, 2008 after a hearing regarding the matter takes place on January 8th.