ALBANY — New Yorkers facing mortgage troubles may benefit from new banking regulations signed into law Tuesday by Gov. David A. Paterson.
The new law is designed to encourage borrowers in default to seek financing counseling and makes it more difficult for lenders to force people out of their homes. Also included are reforms to the state's banking laws to minimize future crises.
"We have still seen thousands of our families lose their homes, and no state has been hit harder by the broader effects of the lending crisis," Gov. Paterson said. "Wall Street's woes have helped to drive New York into recession. We have the responsibility to protect New York's families who are facing foreclosure, and we need to reform banking regulations to ensure this does not happen again."
The new law requires the lender to send the borrower a pre-foreclosure notice at least 90 days prior to initiation of the foreclosure process, including a list of approved housing counselors. The idea is to encourage homeowners to seek assistance and avoid foreclosure.
A settlement conference for foreclosure proceedings involving borrowers with certain types of subprime loans is now mandatory. If the homeowners cannot afford an attorney, one may be appointed under certain circumstances.
Plaintiffs in a foreclosure action against a borrower must now make an affirmative allegation that they indeed have standing to bring the action and that they have complied with applicable laws. The practice of bundling mortgages into securities that are then sold to investors has sometimes clouded actual ownership of mortgages.
The law also includes provisions to address foreclosure "rescue scams" intended to take advantage of vulnerable borrowers by prohibiting upfront fees and requiring a written contract from so-called "distressed property consultants."
Other portions of the bill are aimed at preventing future problems:
■ Consumer protections: For subprime loans and minimum underwriting standards to protect borrowers.
■ Ability-to-pay: Requires lenders to make reasonable and good-faith determinations of borrowers' ability to repay all aspects of a loan.
■ Duty-of-care: Requires mortgage brokers to act in the borrower's interest by presenting the most appropriate loans.
■ Registration: All mortgage servicers servicing loans on residential property in New York must register with the Banking Department.
■ Penal law: Mortgage fraud is classified as a crime, making it easier for prosecutors to pursue cases. As the magnitude of the fraud increases, so does the criminal penalty.
On July 31, the state Banking Department reported that New York ranks 30th nationwide in terms of foreclosure rate — one in every 493 households, versus one in every 171 nationally.
Almost 77 percent of the 16,025 foreclosures filed in the first half of 2008 come from these 10 counties: Queens, Kings (Brooklyn), Suffolk, Nassau, Monroe, Westchester, Richmond (Staten Island), Bronx, Dutchess and Albany. The state's other 52 counties had slightly less than 3,700 filings, or 23 percent of the total, the department said.
