GOVERNOR PATERSON CALLS FOR FEDERAL AND STATE ACTION TO ADDRESS THE MORTGAGE CRISIS

Statistics Show Prevention Efforts Are Failing to Stop Foreclosures

Governor Calls on State Legislature to Adopt Legislation to Expand Homeowner Protections

Governor David A. Paterson followed a meeting this morning with the state’s Congressional Delegation by calling on both the Federal Government and the New York State Legislature to take additional steps to protect New Yorker’s against losing their homes. The Governor called on leaders in the state to adopt the Executive legislation that would assist New Yorker’s currently facing foreclosure, and also help to prevent another crisis from occurring in the future.

The proposed legislation advanced by the Executive branch would mandate communication and negotiation between lender and borrower, in efforts to promote foreclosure mitigation. The bill also would enhance the protections of New York’s Anti-Predatory Lending statute, which shields New York borrowers from unscrupulous lenders. Governor Paterson’s promotion of the bill is a critical step towards its passage.

“We have delivered a package of reforms to the Legislature and I am urging them to give these proposals serious consideration,” said Governor Paterson. “To the credit of the leaders in both the Senate and Assembly, negotiations on this bill will begin this week. But we need to act swiftly to address this crisis and bring relief to thousands of New York States residents who are facing the possibility of losing their homes. The data we see shows this crisis is far from over.”

The most recent statistics, released Tuesday by the New York State Banking Department and RealtyTrac, show that current industry efforts to avoid unnecessary foreclosures are not keeping pace with the rising rate of foreclosures. According to RealtyTrac, there were approximately 14,000 foreclosure filings registered in New York during the first three months of 2008, a 40 percent increase from the same period in 2007.

There were approximately 11,600 foreclosure filings among the top 10 New York counties during the first three months of 2008, with Queens and Brooklyn accounting for 32 percent and Long Island accounting for 24 percent of state-wide filings. In Upstate New York, Monroe and Albany counties were among the hardest hit.

Further evidence of the crisis came last week, with the second report published by the State Foreclosure Prevention Working Group, which also found that industry efforts to avoid unnecessary foreclosures are not keeping pace with the rising rate of homeowners in trouble. The report provides analysis of data from October 2007 through January 2008, and found that seven out of 10 seriously delinquent borrowers in the United States are still on track to lose their homes to bank foreclosure, despite widely-publicized campaigns to encourage homeowners in trouble to seek help and for servicers to fast-track loan modifications. (The full Report is available online at http://www.banking.state.ny.us/pr080422.pdf).

“As the data clearly shows, this is a situation where we need to take immediate action. We can’t delay any longer,” said Governor Paterson. “It was a lack of action that helped get us here, and more inaction is inexcusable. Forecasts show that the worst is yet to come, so we must move now to save the tens of thousands of New Yorkers impacted by the crisis.”

Richard H. Neiman, Superintendent of Banks for New York, and a member of the State Foreclosure Prevention Working Group, said: “I am disappointed that recent findings show little progress has been made in addressing a crisis that is having devastating consequences for families and communities across New York State. Collaboration of state and federal agencies and institutions in addressing the mortgage crisis is vital to our success. I continue to call on nonparticipating servicers and the Comptroller of the Currency to work with us and share aggregated data so we can truly assess the breadth of the efforts being made.”

“I am encouraged by the Congressional attention and recent funding initiatives at the Federal level aimed at stemming the tide of foreclosures,” said Governor Paterson. “But there is still a great deal of work that needs to be done at the Federal level. Helping people keep their homes should continue to be a top national priority and is certainly one of mine as Governor of New York.”

Governor Paterson specifically cited the efforts of Senators Schumer and Clinton, and joins Senator Clinton in calling on the Comptroller of the Currency to allow the State Working Group greater access to the data it needs to analyze the extent of this crisis. Governor Paterson also expressed support for Congresswoman Waters’ bill to establish a $15 billion HUD loan and grant program to help local communities stabilize their housing infrastructure in the midst of rising foreclosures, Congressman Frank’s legislation to expand FHA’s guarantee capacity by $300 billion, and subprime legislation which passed the House in November.

The proposed state legislation was developed to address the subprime mortgage crisis for homeowners, while balancing the regulatory impact on the mortgage lending industry. To ensure consideration was given to the current conditions as well as the future impact on industry and consumers, the bill was developed with input from various industry groups, non-profit agencies and state regulatory agencies related to the mortgage industry. The proposed legislation will address the crisis in two phases, the first by assisting those homeowners most in danger of losing their homes to foreclosure, and secondly by mandating regulations designed to prevent another lending crisis in the future.

Assist People Currently Facing Foreclosure:

• Mandatory Pre-foreclosure Notice: As a result of too little direct communication between borrowers and lenders, many New Yorkers are losing their homes when there could have been other options available. The proposed bill requires lenders to send pre-foreclosure notices to homeowners at least 60 days before initiating foreclosure proceedings. If the borrower engages a housing counselor or reaches out to the lender to negotiate a resolution, the lender will be precluded from initiating a foreclosure action against the borrower for 60 days.
• Mandatory Settlement Conferences: Requires borrowers and lenders to participate in settlement conferences at the beginning of the foreclosure process, and gives the court the ability to assign counsel to negotiate in the conference on behalf of the borrower.
• Affirmative Allegation of Ownership: The bill clarifies the requirement of the plaintiff in an action against homeowners to make an affirmative allegation that the plaintiff holds the mortgage note. Sometimes ownership status is uncertain, leading to questionable foreclosure practices.
• Foreclosure Rescue Scams: The bill would enact tough measures to help prevent distressed homeowners from falling prey to rescue scams. Prohibits payments prior to the performance of promised services to individuals claiming that they can save a borrowers home.

Avoid Another Crisis In The Future:

• Expansion of Consumer Protections: Expands New York State’s Anti-Predatory Lending Law to protect a greater number of borrowers. In addition to expanding the current threshold to include loans up to $750,000, non-conventional loans will be protected by the provisions.
• Establish an “Ability to Pay Standard” for making and arranging all home loans, regardless of the principal amount.
• Duty of Care: Requires lenders, when making a lending decision, to ensure the borrowers reasonable ability to repay and clearly outlines the responsibilities of the broker to act on behalf of the borrower.
• Registration of Servicers: Requires all mortgage servicers servicing loans on residential property in New York State to be registered with the Banking Department.
• Residential Mortgage Fraud: Clarifies mortgage fraud as a crime under Penal Law.

This proposed legislation is just the latest step in New York State’s attempt to address the lending crisis. Bi-partisan leadership was previously demonstrated with the establishment of the Subprime Foreclosure Prevention Services Program. The 2008-2009 Enacted Budget includes $25 million in funding for the New York State Housing Trust Fund Corporation (HTFC), to provide subprime foreclosure prevention services. HTFC in consultation with DHCR, the Banking Department and OCA will develop and administer the program. This will include grants to non-profits to provide services for counseling, mediation, legal representation and negotiation for homeowners, grants for training and support for counselors, mediators and lawyers and grants for credit counseling. The legislation also requires these agencies submit a report on the program and an analysis of mortgage defaults and foreclosures in the state to the Governor, the Speaker and the Temporary President of the Senate by December 31, 2008.

Since March of 2007, the states interagency HALT (Halt Abusive Lending Transactions) Task Force, chaired by Superintendent Neiman, has hosted summits across the state, introducing new guidance for the mortgage industry; and participating in forums, public hearings, and grass-root efforts to educate and inform at-risk borrowers. Also in 2007, SONYMA, the states mortgage agency, announced the $100 million Keep the Dream refinancing program targeting low, moderate and middle-income homeowners, offering homeowners the opportunity to refinance to avoid possible foreclosure.

Various New York State agencies, in particular the New York State Banking Department, have also been proactively addressing this crisis, particularly in the areas where they have regulatory oversight. Banking Department initiatives include:

• Coordination and participation in Operation Protect Your Home forums; foreclosure prevention forums designed to bring borrowers and servicers together in an effort to identify ways to avoid foreclosures.
• Authorization of all Mortgage Loan Originators. New York was one of first states to implement authorization for mortgage loan originators using a national licensing system that includes fingerprinting, background checks and educational requirements.
• Creation of a dedicated Mortgage Fraud Unit to investigate reports of fraudulent practices, and educate law enforcement and the financial sector in identifying, investigating and prosecuting mortgage fraud.