Rising New York Mortgage Troubles Predicted

Over the next two years 50,000 New York homeowners may lose their homes as a result of “predatory” mortgage lender institutions who target minorities and middle-class families, state Senate Democrats said Monday.

The senators called on banks and other lending institutions to implement a voluntary six-month moratorium on foreclosures of sub-prime (bad credit mortgage) loans while legislation addressing the issue can be drafted.

But industry officials say that’s not the best solution.

The mortgage loans, which lenders grant to thousands of people whose credit histories make it difficult to secure a conventional mortgage, have expanded around the country in recent years and now represent a quarter of the nation’s mortgage market, the senators said.

But as interest on the New York home loans increases, so do the number of people who can’t pay for them.

“The crisis has exploded in the last few years and is a significant problem in every region of the state,” said Sen. Jeff Klein, D-Bronx, who also represents part of southern Westchester County.

“These lenders are giving people loans they simply cannot afford.”

According to Klein, 136,000 sub-prime loans totaling $28 billion were written in the state in 2005.

The Center for Responsible Lending, a Washington, D.C.-based think tank, predicts a foreclosure rate on these loans of about 21 percent, or more than 28,000 homes, this year alone.

The number could rise above 50,000 over the next two years, said Senate Minority Leader Malcolm Smith, D-Queens.

Westchester, Rockland and Putnam counties, New York City and Long Island are all facing predicted mortgage foreclosure rates of more than 20 percent, Klein said, with most other areas of the state looking at 15 percent or more.

New York last year had the fifth highest sub-prime, or bad credit home loan foreclosure rate in the country.

Coupled with planned public hearings, a six-month stoppage on foreclosures “would allow an opportunity to hear from the banking industry and from victims of predatory lending and hopefully provide sufficient time to devise a solution that helps victims without hurting ethical lenders,” said Sen. Liz Krueger, D-Manhattan.

But banks have been taking “aggressive” steps to aid sub-prime borrowers already and a moratorium is not the best solution, said Michael Smith, President of the New York State Bankers Association.

But he wouldn’t say specifically why the banks oppose the moratorium.

“We have been aggressive in our response to predatory lending and the problems in the sub-prime market, including multi-billion-dollar programs aimed at refinancing loans,” he said.

“We are not supporting a moratorium; our individual institutions have responded in the ways they believe to be most meaningful.”

In addition to refinancing programs, several banks have offered grants to lenders and are supporting financial literacy programs and new fair-practice standards, Smith said.

He added that the proposed public hearings would be a good opportunity for lawmakers and industry officials to come up with more solutions.

The sub-prime New York mortgage loans can take several forms, but one of the most common is the adjustable-rate mortgage, or ARM.

These come with low interest rates for the first two or three years that then balloon, often beyond what homeowners can pay.

Compounding the situation is a recent decrease in the value of homes, which is hurting people relying on home equity loans to pay their bills.

In April, U.S. Sen. Charles Schumer, D-N.Y., suggested the federal government intervene nationwide to the tune of tens of billions of dollars.

He also advocated a crackdown on lenders whom, he said, often deceive people into believing they can afford the loans.

“The sub-prime market is the Wild West of mortgage loans and it’s time we bring a sheriff into town,” Schumer said in a statement. “The first step is making sure that borrowers are protected from these usurious lenders.”

The senators Monday also announced proposals that would bar the state from doing business with banks that practice predatory lending and would provide education and assistance to potential borrowers.

But the prospects for any New York mortgage bill’s passage are questionable, since the Senate Democrats have only 29 of the 62 Senate seats.

There was no immediate response from the Senate GOP to the idea.

SOURCE: Ithaca Journal