Assemblyman Andrew Raia (R,C,I,WF-East Northport) today attended a Joint Conference Committee that included the Assembly Standing Committee on Banks, which he is the ranking minority member, to investigate the current trends that have led to the subprime mortgage crisis and the potential impact of the problem on Long Island homeowners.
“We are witnessing a situation where consumers with impaired credit histories are being disproportionately affected because they wrongly assume that their mortgage broker is acting in their best interest. Unfortunately, this has caused a dramatic spike in homeowners entering foreclosure, especially on Long Island,” said Raia.
Higher risk subprime mortgages generate a higher yield for lenders and increase investor demand for those with impaired credit ratings. This has resulted in the development and marketing of new alternative mortgage products. These products contain risks as adjustable-rate loans, initially with low rates, are set to higher rates. Often, mortgages are offered without consideration for the borrowers’ ability to repay.
According to some studies, an estimated 50,000 New York households were in some stage of foreclosure in 2006. Raia noted foreclosure rates on Long Island succeed state and national averages due to the higher cost of living and the ever-increasing cost of homes.
“We obviously have a serious problem on our hands and we must work diligently to find a solution,” added Raia. “This will require a comprehensive, coordinated effort that will include all state agencies, lenders, Governor Spitzer and legislators.”
Governor Spitzer has organized the Halt Abusive Lending Transactions Task Force (HALT), designed to link all state agencies and departments that are involved in mortgage issues. Six core initiatives of the task force include:
- Analyze foreclosure and lending data to identify borrowers and communities both at risk;
- Develop loan and refinance programs to help homeowners with current loans that are inappropriate for their financial circumstances;
- Create a statewide outreach and educational campaign to assist the state’s most vulnerable borrowers;
- Consider legislative and regulatory changes to enhance compliance and expand consumer protections;
- Identify possible patterns of discriminatory lending behavior; and
- Pursue enforcement actions against those engaging in wrongful conduct, which includes the establishment of a joint Mortgage Fraud Unit.
“Unfortunately, consumers rely on their mortgage professional who may not be acting in their best interest. It is my belief that we must be proactive to help solve this problem rather than simply rely on the market to correct itself. When a house is foreclosed it’s not just a piece of property, it’s often a family’s life hanging in the balance,” said Raia.
Raia noted that possible legislative responses could include safeguards regarding the service between the broker and customer, to ensure the broker must deal fairly and in good faith with their customers. Also, the compensation system must prevent a situation where customers are pushed towards higher cost or inappropriate loan choices by incentives. Finally, brokers could be required to provide consumers with a list of financing options and terms prior to the transaction.
“Knowledge is the key to winning this battle, and I look forward to working to provide real solutions to help prevent my constituents from making poor decisions relating to home buying. I will continue to work with the Legislature on possible remedies, but in the meantime I will work to educate those in Suffolk County of the possible risks associated with buying a home,” concluded Raia.