Mark Winston Griffith

New York to Governor and Legislature: Do the right thing on Foreclosure Prevention

This is it. The end of the line. The New York State legislature and the Governor's office, according to reports, are hammering out a legislative response to the foreclosure crisis as the clock winds down on the 2008 legislative session. Working from the Governor's Program Bill 44, the New York State legislature could be on the verge of passing one of the strongest and most progressive anti-predatory lending and foreclosure prevention bills in the country.

Or not.

The Governor's Program Bill 44 proposes interventions that would help homeowners threatened with foreclosure, and provides, over the long term, strong and comprehensive consumer protections against abusive mortgage lending practices and aggressive foreclosure action. The Governor's bill includes an update and expansion of New York’s current anti-predatory lending law; requires lenders to verify a borrower’s ability to pay; requires that brokers act with good faith and fair dealing in the borrower's interest; requires lenders to send an early notice to distressed homeowners with contact information for local non-profit housing counseling agencies; and encourages lenders to work out settlements with homeowners in distress early on in the foreclosure process.

Sounds reasonable, right? But from the moment Governor Spitzer introduced this bill and then Governor Paterson adopted it as his own, the banking and mortgage lobbies have been steadily working against it. Unable to kill it outright because the subprime meltdown and foreclosure crisis are too irrefutably harmful to the economy and homeowners, the mortgage industry has taken to killing discreet, but critical features of the bill.

One of the mortgage industry's most prevalent claims, a constant refrain you can set your watch to any time lending reform is proposed, is that some provisions will make it more difficult for people to access credit. The truth is, this bill will simply make it more difficult for lenders to hustle the kind of abusive and recklessly underwritten loans that have been in the express lane to foreclosure over the last few years.

For example, the mortgage industry has claimed that the annual percentage rate thresholds that are used to determine which loans are "subprime" and thus subject to the law, are unreasonably low and will interfere with their "prime" lending activity. But this claim is effectively undermined by the fact that the Governor's bill, which has proposed a threshold of 3% over the comparable treasury security rate, simply complies with thresholds recently proposed by the Federal Reserve Board.

This is literally a defining and indispensable element of the bill. If the threshold is raised it could have the effect of gutting the legislation by opening up a hole wide enough for mortgage lenders to drive through a truck load of high interest, abusive loans.

The bottom line is, the governor's bill must be kept in tact. Passing predatory lending and foreclosure prevention legislation that does not effectively prevent predatory lending and foreclosure would be cynical and irresponsible.

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Posted at 9:00 AM, Jun 18, 2008 in Economic Opportunity
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