Assembly Passes Legislative Package Aimed At Addressing The Sub-Prime Lending Crisis

Comprehensive package provides financial assistance and counseling and legal services, includes foreclosure moratorium

Assembly Speaker Sheldon Silver and Banks Committee Chair Darryl Towns today announced Assembly passage of comprehensive measures aimed at bringing relief to families and communities across New York coping with the national sub-prime lending crisis.

The four-bill package contains legislation which, if enacted, would offer assistance to homeowners currently in default or foreclosure, establish requirements on all home loans, provide critical consumer information to all residential mortgage applicants and call for a one-year moratorium on foreclosures to allow residents to remain in their homes while granting them time to work with lenders to modify their mortgages.

The lawmakers stressed that the package represents the Assembly Majority's continued commitment to assisting the victims of predatory lending practices, stabilizing communities across the state and helping New York address one of the most widespread economic situations facing neighborhoods throughout the United States. This comprehensive package would help New York's working families by providing temporary financial assistance to those facing crisis and by taking steps to prevent similar occurrences.

"The federal government was quick to bail out big businesses like Bear Stearns from near-collapse, but seems to have all but forgotten the everyday common household victims of this national crisis," said Silver. "We in the Assembly Majority want to see New York's families stay in their homes and our communities to remain intact. Our package is not a bail out. It's an assistance program to help homeowners in our state keep the American dream from turning into a nightmare."

"The mortgage industry aggressively marketed mortgages with low 'teaser' interest rates. The price for these initially low rates are rates that increase significantly after several years," said Towns (D-Brooklyn). "Other questionable loans include interest-only mortgages and mortgages made with little or no income verification. These schemes have also placed millions of Americans, particularly in low-income communities and communities of color, at risk of foreclosure."

"The foreclosure moratorium provides immediate relief for New York families faced with this crisis and that foreclosure of their homes. This encourages lenders and homeowners to settle cases out of court through modification, refinancing or other means to avoid the devastation of losing a home," said Assemblyman James Brennan (D-Brooklyn), sponsor of the foreclosure moratorium legislation.

"With thousands of mortgages about to adjust in the next few months, this sup-prime package is a breath of fresh air. This will help all consumers understand their rights and be proactive about future investments," said Assemblyman Jose R. Peralta (D-Queens), sponsor of the Mortgage Applicant's Bill of Rights.

Specifics of the legislation would:

• Create the Foreclosure Prevention Act of 2008 which provides temporary financial assistance to homeowners with sub-prime or unconventional mortgages facing foreclosure. Assistance payments would be capped at an amount equal to three months of mortgage payments and dovetails on the $25 million from the enacted state budget to provide legal services and counseling to assist certain homeowners in default or foreclosure (A.10083-A/Silver);

• Establish the NYS 2008 Responsible Lending Act to protect consumers against abuses in the sub-prime and non-traditional home loan market, including loan limitations, duties of mortgage brokers and remedies for violations. This act establishes requirements on all home loans, including lenders' responsibility to verify borrowers' ability to repay loans and to verify income. It establishes an agency relationship between the mortgage broker and borrower and defines prohibited practices such as balloon payments, negative amortization and prepayment penalties (A8972-C/Towns);

• Allow a court to delay the actual order to transfer title when faced with the foreclosure of a sub-prime mortgage under specific conditions for no more than one year in order to allow the mortgagor to apply for relief. This measure would allow residents to remain in their homes while granting them time to work with lenders to modify their mortgages. (A.9695-B/Brennan); and

• Create the Mortgage Applicant's Bill of Rights, which requires mortgage lenders and brokers to provide consumers with a bill of rights pamphlet that must be read and signed by the consumer prior to applying for a mortgage. The pamphlet will enumerate all the information that a prospective homeowner needs to know in order to make an informed decision about a home loan, including how to file a complaint with the Banking Department or the Department of State (A.10219-C/Peralta).

According to experts, foreclosures hit a record high in the fourth quarter of 2007, with over 50,000 New York households in some stage of foreclosure in 2006 alone. The lawmakers noted that the incidence of delinquency tended to be geographically concentrated, suggesting that some New York communities may be impacted more severely than others.

"Our goal in the Assembly is to provide resources to the people who have been victims of the predatory loan companies and prevent New Yorkers from falling into this trap in the future. With proper assistance and education, we can continue to protect our neighborhoods and enjoy our communities," concluded Silver.