New York Mortgage Broker, Lender Practices Questioned

Denouncing what he called “rogue” mortgage lenders and “liar” loans, New York Sen. Charles Schumer Wednesday called for the national regulation of mortgage brokers and a ban on riskier, controversial loan products.

According to the Buffalo News, the state’s senior senator said the collapse of the home loan market for borrowers with bad credit shows the need to protect consumers from practices he calls unscrupulous.

The Democrat also said the market for so-called “subprime” (bad credit mortgage loans) has operated with too little federal or state oversight, aside from simple registration of mortgage brokers in some states.

And he said federal scrutiny is needed to rein in non-traditional mortgage products, high rates and fees, and reckless mortgage lender practices that threaten the ability of many to own a home.

The National Association of Mortgage Brokers Tuesday criticized a proposal by two groups of regulators, who called for a national registry of brokers.

The mortgage broker group said the proposal, while admirable in theory, does not go far enough, as it wouldn’t include all lenders.

However, one Western New York mortgage lender said regulation is clearly necessary to weed out bad actors. She even supports some of Schumer’s recommendations, although she hopes Congress doesn’t overreact.

“As usual, the government is reacting far too late to abuses,” said Linda Mallia, president of Devere Mortgage Corp. “I just hope now that they don’t do what they usually do. I hope what is done is reasonable and realistic.”

The bad credit New York mortgage industry is being hammered as higher rates and falling home prices are leaving borrowers unable to make payments or refinance. Losses have risen precipitously.

Nationally, more than 1.2 million homes were foreclosed in 2006, while the number of homeowners who were in some stage of foreclosure in December 2006 was up 35 percent from a year earlier.

The Federal Deposit Insurance Corp. projects about 1.8 million Americans could eventually lose their homes because they can’t afford new payments after mortgage rates tick up.

That includes more than 50,000 in Upstate New York and nearly 10,000 in the eight-county area of Western New York. And Schumer noted the state numbers are probably low because New York’s foreclosure rate is higher than the U.S. as a whole.

“This subprime problem is turning into a foreclosure nightmare and thousands of New Yorkers are likely to be left in the wake,” he said. “The first step is to make sure the borrowers are taken care of.”

To that end, Schumer said he would try to convene a state foreclosure prevention task force — consisting of private mortgage lenders, government officials, and non-profit representatives — as well as a rescue fund to help residents who may be facing foreclosure.

He’s in the process of talking to state and federal regulators, the U.S. Department of Housing and Urban Development, and mortgage finance firms Fannie Mae and Freddie Mac.

The goal would be to help homeowners qualify for a fast mortgage refinance on unaffordable loans, allow them to put off payments temporarily, and help them sell distressed homes if necessary.

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