Blunt announces plan to make mortgage fraud a felony in Mo.

JEFFERSON CITY, Mo. -- As national concern about home foreclosures and subprime loans grows, Gov. Matt Blunt on Monday proposed sending swindlers to prison.

Blunt's plan would make mortgage fraud a state felony, with a sentence of up to seven years in prison. It also would allow state departments to punish those who committed mortgage fraud.

In a written statement, the governor said his plan would help at-risk homeowners forestall foreclosure. A spokeswoman for Blunt said the main targets are "foreclosure consultants" who advertise that they can help homeowners who are worried about losing their homes but then never help out.

The governor is calling for a hot line within the Department of Insurance, Financial Institutions and Professional Registration so that borrowers can get information about avoiding foreclosures. His proposal also would allow licensing commissions and the Division of Finance to go after predatory lenders.

It's not the first time lawmakers have proposed criminal penalties for certain types of mortgages. Last session, Senate Majority Leader Charlie Shields, R-St. Joseph, filed a bill that would have made it a felony for lenders to mislead prospective borrowers. But the measure never made it out of a Senate committee.

Blunt's idea comes less than a week after lawmakers proposed legislation that would add new regulations for subprime lenders. While a draft version of the House legislation focuses on new regulations, Blunt's plan focuses on penalties, notice requirements and administrative oversight surrounding foreclosures.

Sub-prime loans are designed to help borrowers with poor track records get credit. The loans generally have adjustable interest rates that start low and gradually track upward. For many low-income borrowers, the higher interest rates make it difficult to keep up with the payments and more likely that lenders will foreclose on their homes.

An organizer for an activist group that has helped borrowers estimated that several hundred thousand Missourians have subprime loans. The Association of Community Organizations for Reform Now endorsed legislation last week that would create a series of new regulations for lenders while allowing borrowers to sue for violations.

Several states already have passed laws adding regulations on lenders.

A trade group for bankers has said that most of the state's regulated financial institutions -- such as neighborhood banks and credit unions -- aren't deeply involved in subprime loans. But the leader of a trade group for mortgage bankers warned that going too far with penalties on lenders could make it more difficult to get credit in Missouri.