A report released by the Pennsylvania Department of Banking finds that "subprime" mortgages represent the majority of loans that result in foreclosure action.

The subprime loan market is designed to serve people who do not qualify for "prime" loans, primarily due to impaired or limited credit histories. Eight states have rates higher than Pennsylvania's 2003 prime foreclosure rate of 0.85 percent.

However, only three states have higher subprime foreclosure rates, with Pennsylvania's standing at 11.9 percent, according to figures reported by the Mortgage Bankers Association. A statewide study of foreclosures by The Reinvestment Fund (TRF), also released today, found that Pennsylvania experienced an estimated 14 percent increase in sheriff sales, or approximately 55,000 homes, between 2000 and 2003.

"Our study revealed reasons for much concern in the Commonwealth - abusive lending practices happen every day and we have one of the highest foreclosure rates in the nation," said Pennsylvania Banking Secretary Bill Schenck. "But our investigation also revealed reasons for hope. Policymakers, financial industry leaders and consumer advocates recognize the problem and are united in their commitment to protecting vulnerable consumers."

Abusive lending practices usually involve some form of deception, fraud or manipulation of borrowers and may include but are not limited to: making a loan without regard to a borrower's ability to repay; charging excessive fees; using aggressive and deceptive marketing; and operating home improvement scams.

"The Department of Banking has several recommendations - some already underway - to address abusive lending practices and bring down the number of foreclosures," said Schenck. "Our report offers significant administrative and legislative changes as well as several topics for ongoing study."

The Banking Department will issue new policies to define dishonest, fraudulent, unfair, unethical and illegal mortgage lending practices, Schenck said. The department will institute a "best practices" program for mortgage brokers, lenders and servicers.

In addition, the department has identified several ways in which the General Assembly can strengthen laws to protect consumers, including creating a new licensing category for individual mortgage loan solicitors.

However, legislation pending in Congress would supersede state laws, barring Pennsylvania and other states from enacting laws stricter than those dictated by Congress.