New state laws that took effect in January prohibit some of the riskier mortgage products and impose stricter controls on lenders across the board, said Will Lund, director of the state’s consumer credit agency.

The laws focus on two concepts: making sure there’s a net benefit to the consumer who is refinancing a loan and establishing a standard to prove a consumer’s ability to pay.

The first requires that a mortgage customer be shown that he or she is better off with the terms of a new loan, rather than their primary loan. The second requires verification of income, putting a stop to “liar’s loans” as they are known in the industry, where applicants fabricate incomes without producing pay stubs or other evidence of income.

Other practices – such as loan officers coaching consumers to inflate their incomes – are now illegal. So, too, is allowing a mortgage broker to boost a consumer’s financial profile by making a deposit in the applicant’s bank account.

Lund said some brokers would deposit several thousand dollars in a customer’s savings account to make them look more financially stable than they really were. The customer would get the mortgage, the broker would collect his fees and the customer would return the deposit to the broker.

“That’s fraud,” Lund said.

He said disciplinary actions have been taken against loan officers at mortgage companies who’ve been accused of those practices.

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