Assemblyman Proposes Plan To Stem Mortgage Crisis
Assemblyman Alan Maisel (pictured) announced last week that the Assembly is introducing a comprehensive plan he supports designed to help address the sub-prime lending crisis. The measure will help homeowners across New York who took advantage of low-interest loans only to find that they are unable to afford the mortgages they have received.
"The sub-prime lending crisis in the United States is depriving countless Americans of a fundamental American dream - owning one's own home," Assemblyman Maisel said. "We can't sit around and do nothing while tens of thousands of hardworking New Yorkers lose their homes because of some bum-deal adjustable rates offered by sub-prime lenders. The legislation delivers real relief, helping borrowers who are in default on their mortgages."
The sub-prime lending crisis has been fed by adjustable-rate mortgages that often offer low initial "teaser" interest rates that then skyrocket after several years. The crisis leaves existing homeowners who obtained a second mortgage or home equity loan - and first-time homebuyers - unable to afford repayment.
Other questionable practices include lenders granting interest-only mortgages and mortgages made with little or no verification of borrowers' abilities to repay their loans.
The new legislation supports includes two key components, first to provide millions in direct financial relief and counseling services for homeowners and second, to help prevent ruthless lending practices.
The initiative creates a $150 million mortgage assistance grant fund to assist borrowers in owner-occupied homes who are in default:
•Homeowners must be actively engaged with their lenders or loan services to develop "workout" arrangements or loan modifications; and
•Lenders must contribute financially to any workout arrangement or loan modification.
In addition, $30 million will be dispersed to counseling entities and legal services organizations to provide counseling, mediation assistance and foreclosure representation.
The Responsible Lending Act of 2008 will help curb questionable loan practices by:
•Addressing current sub-prime predatory lending practices, including adjustable rate mortgages, negative amortization, prepayment penalties and lending without regard to repayment ability; and
•Increasing the duties owed borrowers by lenders and brokers.
Other provisions would:
•Require the NYS Banking Department to monitor and study the mortgage industry and report on the effectiveness of public efforts to reduce defaults and foreclosures;
•Require home loan originators to report their lending activity to the Banking Department, which then would be required to issue an annual report to the Legislature and develop a database on defaults and foreclosures;
•Provide Community Reinvestment Act (CRA) credits to lenders who agree to engage in workout arrangements with appropriate borrowers;
•Establish a duty for lenders to engage in "reasonable" loss mitigation activities upon default of a mortgage in order to provide an alternative to foreclosure and to ensure that the loan is sustainable for the life of loan; and
•Provide notices to borrowers to:
•Require mortgagee to notify borrowers well in advance - 3 to 6 months - of an interest rate reset; and
•Require that mortgagee notify mortgagor of services available for default counseling and assistance when the mortgagor is in default in order to obtain standing to bring foreclosure action.
According to experts more than 50,000 New York households were in foreclosure or default in 2006 alone. Many of these foreclosures are geographically concentrated, suggesting pockets of the state will be more affected than others.
"This legislation will help more New York families stay in their homes and will also help these communities stay intact," Maisel said. "By taking action we can help keep people in their homes and the preserve the economy."