Governor David A. Paterson today announced an agreement with the Legislature to pass a critical subprime lending reform bill which will directly address the mortgage crisis in New York State by immediately helping to protect people from losing their homes and by mandating reforms which will help avoid another similar crisis in the future.
“I commend both the Senate and Assembly for coming together and passing comprehensive legislation that will protect the citizens of New York who are in real danger of losing their homes,” said Governor Paterson. “While private sector efforts are an important part of the solution, they are inadequate to address a housing crisis of this magnitude. The latest numbers show that this is getting worse in New York, and with this bill we can finally move towards protecting homeowners in ways that have not been possible until now.”
The subprime bill will help save thousands of New Yorkers from losing their homes. Data from the New York State Banking Department shows that approximately one in 200 New York homes is in the foreclosure process. Some areas of New York – such as Queens, Brooklyn and Long Island – are being disproportionately impacted. In Upstate New York, Monroe and Albany counties are among the hardest hit. The bill also takes into consideration the importance of striking the right balance between consumer protection and the availability of affordable credit.
Assist People Currently Facing Foreclosure
The immediate focus of the bill is on existing homeowners facing foreclosure:
- The bill requires lenders to send a pre-foreclosure notice to borrowers at least 90 days before foreclosure proceedings may be initiated. This will encourage homeowners to seek help prior to the initiation of foreclosure proceedings. The bill would also require lenders to list in the notice government approved housing counselors serving the borrower’s area.
- The bill establishes a mandatory settlement conference for foreclosure proceedings involving homeowners with certain subprime loans. For homeowners who cannot afford an attorney, the court under certain circumstances, may appoint one.
- The bill requires plaintiffs in an action against a homeowner to make an affirmative allegation that they have standing to bring the foreclosure action and have complied with certain applicable laws. Ownership of the mortgage and the note is sometimes uncertain, which has lead to questionable foreclosure practices.
- The bill includes provisions to address foreclosure rescue scams intended to take advantage of borrowers when they are most vulnerable. This bill will prohibit upfront fees and require a written contract from so-called “distressed property consultants.”
Avoid Another Crisis In The Future
There are additional elements in the bill that are designed to prevent future crises:
- The bill enacts a new provision in the Banking Law to establish strong consumer protections for subprime loans and minimum underwriting standards that protect borrowers.
- Ascertaining the borrower’s ability to pay is a basic tenet of prudent lending. The bill establishes an ability to pay standard requiring lenders to make a reasonable and good faith determination of the borrower’s ability to repay the loan, including the principal, interest, taxes, insurance, assessments, points and fees.
- The duty of care feature of the bill requires brokers to act in the borrower’s interest by presenting loans most appropriate for the borrower.
- All mortgage servicers servicing loans on residential property in New York would be required to register with the Banking Department.
- Mortgage fraud would be classified as a crime under the Penal Law, making it easier for prosecutors to pursue cases. As the magnitude of the fraud increases, so would the criminal penalty.
In May, Governor Paterson visited Washington D.C. to urge the state’s Congressional Delegation to work towards a federal solution to the lending crisis, which would compliment efforts in New York. On that trip, the Governor stressed that in order to aid homeowners and prevent a similar crisis from happening again, legislation needs to be passed on both the state and federal levels.
“I continue to wait for action from the Federal Government to address this crisis,” said Governor Paterson. “We cannot solve the problem alone. We have done our part on the state level, and now we need comprehensive legislation from Washington as well.”
Senate Majority Leader Joseph L. Bruno said: “This agreement balances the need to provide help to families who are facing foreclosure of their mortgages and the loss of their homes, with concerns raised by the banking industry about protecting the ability of lenders to provide mortgages to future homeowners. I’m pleased that the Senate, Governor and Assembly were able to reach agreement on this important issue and, in particular Senator Farley for his leadership.”
Assembly Speaker Sheldon Silver said: “Homeownership is one of the most basic American dreams, but the pursuit of this dream has resulted in a nightmare for the many borrowers who were enticed with subprime loans that they can no longer afford,” said Silver (D-Manhattan). “One of the Assembly’s first orders of business this session was to bring meaningful relief to the tens of thousands New York homeowners struggling to hang on to their homes. We proposed a much-needed mix of direct financial assistance, support for counseling and legal services, and active lender participation in solving this problem. I am very pleased together with the governor’s leadership, New Yorkers will receive the type comprehensive relief we have been fighting for.”
Senate Democratic Leader Malcolm A. Smith said: “Nearly 125,000 New York families will face foreclosure his year. For the thousands of families caught in the sub-prime lending crisis, this agreement couldn’t have come soon enough. I commend Governor Paterson, the Assembly and the efforts of my Senate Colleagues on addressing the short-term challenges of homeowners already in foreclosure, as well as, closing the legal loopholes that allowed predatory lenders to victimize homeowners.”
Senator Hugh Farley, Chairman of the Senate Banking Committee said: “This is an important agreement on a critical topic. Working together, we have crafted legislation which will hopefully help families who are at risk of losing their homes because of the subprime mortgage crisis, but at the same time we are trying to ensure that future home buyers will continue to have access to the mortgage market. I commend the Governor and the Superintendent for their active involvement and leadership working with the Legislature.”
Assembly Banking Committee Chair Darryl C. Towns said: “For more than a year, through public hearings and comprehensive legislative packages, the Assembly Majority has been sounding the alarm on the negative impact of the sub-prime mortgage on communities throughout New York State. What we found were a large number of questionable lending practices such as interest-only mortgages and mortgages made with little or no income verification. While these schemes have helped drive the homeownership rate in the United States to a record 70 percent, they have also placed millions of Americans, particularly in low-income communities and communities of color, at risk for foreclosure,”
Senator Martin Connor, ranking Democrat of the Senate Banking Committee said: “This crisis exploded in the last few years and the Governor, as well as, my Senate colleagues should be applauded for passing legislation that will help homeowners stay in their homes. This subprime lending crisis has had a devastating effect on families, communities and all New Yorker’s. This is an important step forward.”
Richard H. Neiman, Superintendent of Banks for New York State said: “This is an important piece of legislation that builds on and compliments our existing wide-ranging efforts to address this crisis, including homeownership counseling, enhanced enforcement, and bringing borrowers and lenders face-to-face in an effort to avoid unnecessary foreclosures. The bill also introduces new underwriting standards and duties of care that will protect borrowers, lenders and investors.”
Substantial new programs to fund homeowner counseling have already been established in New York State, including the Subprime Foreclosure Prevention Services Program, a $25 million statewide program approved by the Legislature. This program includes grants and aid to non-profits to provide financial counseling, mediation, legal representation, negotiation, and other support services to borrowers who are facing default or foreclosure.
Additionally, the State Foreclosure Prevention Working Group is a multi-state task force working with subprime mortgage loan servicers to reduce the number of unnecessary foreclosures by encouraging loan modifications and other sustainable long-term solutions.
To date, the most notable outreach effort is Operation Protect Your Home, a series of foreclosure prevention forums bringing borrowers and servicers together face-to-face to discuss possible alternatives to foreclosure. Seven Operation Protect Your Home forums have been held across the state to date – in the Bronx, Brooklyn, Buffalo, Queens, Westchester and Staten Island with the most recent forum in Long Island on June 7.