Too late for some, state addresses subprime fiasco By ALEXANDER SOULE

Too late for some, state addresses subprime fiasco
By ALEXANDER SOULE

With experts predicting a sharp increase in foreclosures despite stiff laws against predatory loans, New York lawmakers in the past several weeks have launched new initiatives to stem abuse by mortgage lenders and brokers.

In May, Gov. Eliot Spitzer established a task force called Halt Abusive Lending Transactions (HALT), led by Richard Neiman, the new superintendent of the New York State Banking Department.

HALT, which plans to hold a forum June 28 in Buffalo, is working to:

• identify borrowers and communities most at risk;

• develop loan and refinance programs to help homeowners with problem loans;

• create educational campaigns to assist the state’s most vulnerable borrowers;

• propose legislative and regulatory changes to expand consumer protections;

• identify lenders and others who benefit from steering people into untenable loans; and

• prosecute anyone engaging in wrongful conduct.

In early June, New York State Assembly’s Banking Committee set about stiffening the state’s Responsible Lending Act of 2003, among the six best anti-predatory lending statutes in the country, according to the Durham, N.C.-based Center for Responsible Lending. The new bill addresses what CRL says is the lone weakness of the 2003 law, effective protections against “flipping” harmful refinance loans.

At its most fundamental level, predatory lending relies on the inability of the borrower to understand loan terms and obligations. That makes it difficult to stanch via statute, without the risk of similarly stymieing legitimate loan activity.

In May, foreclosures in New York were up 3 percent from April but down 8 percent from May 2006, according to RealtyTrac of Irvine, Calif.

For subprime loans originated last year, however, New York can expect the fifth worst foreclosure rate in the nation at 21 percent of those underwritten, according to Ellen Harnick, senior policy counsel with the Center for Responsible Lending (CRL).

CRL’s statistics lump White Plains with New York City, making it difficult to predict the impact in Westchester County. In Fairfield County, Conn., which shares Westchester’s economic profile, just 10.5 percent of subprime mortgages are expected to fail, the second best rate of any of the country’s largest municipalities.

In January, New York enacted a law expected to help regulators better identify and censure those who employ predatory techniques. The bill could serve as a model for a national registry of mortgage originators, according to Douglas Baum, legislative chairman the New York Association of Mortgage Brokers.

In February, New York’s Home Equity Theft Prevention Act went into effect, intended to stop predators from purporting to “rescue” homeowners facing foreclosure by taking possession of the deed in exchange for financial assistance.

The law gives home sellers a five-day period to cancel any sale, imposes disclosure requirements; requires a legitimate in-person attorney present at the closing; and prevents lenders from granting mortgages to such “equity purchasers” if they know the purchaser is not complying with the law.

Will the new rules have an immediate impact? States have had a mixed record in curbing abuses via statute. In 1999, North Carolina became the first state to pass a law prohibiting predatory state lending, according to Giang Ho, an analyst with the Federal Reserve Bank. Connecticut and Texas were in the vanguard of states to follow suit in 2001.

In the first two years of the North Carolina law’s enactment, subprime mortgage originations dropped 36 percent in the North Carolina counties studied by Ho and fellow Fed analyst Anthony Pennington-Cross.

In Connecticut, however, subprime mortgages rose 88 percent, with applications increasing and rejection rates decreasing, and in Texas subprime originations rocketed up more than 3,000 percent.

Reader Comments

Please send us your comments!

Add Your Comments

TalkBack & let us know what YOU think.

If you have something to add to this discussion topic, we'd like to know.

To send a comment:

1. Enter your full name
2. Enter your email address
3. Post your comment and click 'Submit'

Full Name:

Email Address:

Example: johndoe@aol.com

Comments:
Post your comment here
(WestfairInc reserves the right to edit any text for broadcast)