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IN SENATE May 2, 2008
AN ACT to amend the real property actions and proceedings law, the civil practice law and rules, the banking law and the general obligations law, in relation to home mortgage loans; to amend the penal law and the criminal procedure law, in relation to creating new crimes relat- ing to mortgage fraud; and to amend the real property law, in relation to distressed property consulting contracts
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Go to Top of Page06/23/08 S8143-A Assembly Vote Yes: 140 No: 0Yes Abbate Yes Alessi Yes Alfano Yes AmedoreER Arroyo Yes Aubry Yes Bacalles Yes BallYes Barclay Yes Barra Yes Benedetto Yes BenjaminYes Bing Yes Boyland Yes Boyle Yes BradleyYes Brennan Yes Brodsky Yes Brook-Krasny Yes BurlingYes Butler Yes Cahill Yes Calhoun Yes CamaraYes Canestrari Yes Carrozza ER Christense:n Yes ClarkYes Cole Yes Colton Yes Conte Yes CookYes Crouch Yes Cusick Yes Cymbrowitz Yes DelMonteYes Destito Yes Diaz L Yes Diaz R Yes DinowitzYes Duprey Yes Eddington Yes Englebright Yes ErrigoYes Espaillat Yes Farrell Yes Fields Yes FinchYes Fitzpatrick Yes Gabryszak Yes Galef ER GanttYes Gianaris Yes Giglio Yes Glick Yes GordonYes Gottfried Yes Greene Yes Gunther A Yes HawleyYes Hayes Yes Heastie Yes Hevesi Yes HikindYes Hooper Yes Hoyt Yes Hyer-Spencer Yes JacobsYes Jaffee Yes Jeffries Yes John Yes KavanaghYes Kellner ER Kirwan Yes Kolb Yes KoonER Lafayette Yes Lancman Yes Latimer Yes LavineYes Lentol Yes Lifton Yes Lopez P Yes Lopez VYes Lupardo Yes Magee Yes Magnarelli Yes MaiselYes Markey Yes Mayersohn ER McDonald Yes McDonoughYes McEneny Yes McKevitt Yes Miller Yes MillmanYes Molinaro Yes Morelle ER Nolan Yes OaksYes O'Donnell Yes O'Mara Yes Ortiz Yes ParmentYes Paulin Yes Peoples Yes Peralta Yes PerryYes Pheffer Yes Powell Yes Pretlow Yes QuinnYes Rabbitt Yes Raia Yes Ramos Yes ReilichYes Reilly ER RiveraJ Yes Rivera N Yes Rivera PYes Robinson Yes Rosenthal Yes Saladino Yes SayvirardYes Scarborough Yes Schimel Yes Schimminger Yes SchroederYes Scozzafava Yes Seminerio Yes Spano Yes StirpeYes Sweeney Yes Tedisco Yes Thiele Yes TitoneYes Titus Yes Tobacco Yes Towns Yes TownsendYes Walker Yes Weinstein Yes Weisenberg Yes WeprinYes Wright Yes Young Yes Zebrowski K Yes Mr. Speaker
Go to Top of Page06123/08 S8143-A Senate Vote Aye: 61 Nay: 0Aye Adams Aye Alesi Aye Aubertine Aye BonacicAye Breslin Aye Bruno Aye Connor Aye DeFranciscoAyeDiaz Aye Dilan Aye Duane Aye FarleyAye Flanagan Aye Fuschillo Aye Golden Aye Gonzalez
http://nyslrs.state.ny.uslNYSLBDC l/bstfrme.cgi oooon3 7/2412008 Page 2 of2
http://nyslrs.state.ny.us/NYSLBDCl/bstfrme.cgi 7/24/2008 SENATOR FARLEY Fax:518-455-2271 Jul 31 2008 20:28 P. 01
THE SENATE CI:WRMAN STATE OF NEW YORK <\1< LroJS)..,'.'\Tv'EOI'FICE IHJILDING MAjQIUI'V P1l()(;lWo' AU?JINY. NEWYO"l\ 1~:47 DEV:£lOPMErlT 1;18) ~·lJel CliAlRMAN (800) 224-11,1)) COMMlmll OK BA!'l:<5 FAX (>l~) 4"",l7j CHI'Il\MAN ~O il,IVERFROI'IT c:Ei'lT£(l. SELECT COMMITIEE QN AMSTERDAM. NEWYOl\l< 120:0 I~T"'1'E ClXll'EM'l'ION (~[el 843--2138 C:liAl!tM)..N ~ £J.5T MAlN $TR<:E.TSUBCOMMIT1€E ON UllRAAI£;; JOHNSTOWN. NI>WYORK 11097 COMM1'I'J'EE AS51:;;NMENTS: HUGH T. FARLEY (~IS) 7(.2·1733 ...GING .13Ar-:J;S l5ENATOR. 44TH DI~TRICT f,-M.'IlL nl-\ICS -HEALTH' ?I:-.IANCE FA.<'LE'{@l~EN, ..rE:.STATt.NY.US fUDlaARY· jl.UL:ES WEBSlT!> WWW.SENAT01l.FAAlEY.C:OM July 31 , 2008
Kristin Rosenstein Legislative Secretary's Office Executive Chamber State Capitol -- Room 225 Albany, NY 12224
Thank you for the opportunity to comment on a bill I sponsored. Govemor's Program Bill S.8143-A, which is before the Govemorfor his consideration.
n Last year, an interagency task force (HAL was established to address the problem of mortgage foreclosures and abusive lending practices. Like other states, New York has experienced a significant increase in mortgage defaults and foreclosures (although statistics indicate that the problem has been less ~ievere in New York than in many other parts of the country). The Senate Banks Committee, which I chair, invited the Superintendent of Banks to appear before a special committee meeting on December 13, 2007 to update the Committee on sUbprime foreclosure problems and the activities of the Task Force. At that meeting, the Superintendent confirmed that legislation was being developed to address these problems.
As part of the HALT Task Force's mission, the Governor's Office and the Banking Department developed a Governors Program Bill to address the problem of mortgage foreclosures and abusive sUbprime lending practic€~s. This bill was submitted to the Legislature in the Spring of 2008, and the Senat.~ Banks Committee held a public hearing on this legislation on; May 12th. The challenge was to enact meaningful legislation that would prevent abuses and help struglgling homeowners without harming all consumers by inadvertently driving up the cost of credit or limiting the availability of legitimate credit. We also had to recognize the limits placed on the states by federal preemption of state banking laws.
Extensive negotiations were h~ld between the Governor's Office, the Senate and the Assembly on this proposal, reSUlting in the passa~le of this amended bill. I applaud Governor Paterson for making this legIslation a priority. His commitment helped the parties to reach a consensus and advance this legislation.
D 000005___________ SENATOR FARLEY Fax:518-455-2271 J Lli 31 2008 20: 28 P.02
2) The bill establishes new istandards and protections for subprime loans that will be made in the future. For example, these loans must have escrow accounts, may not have prepayment penalties, may not have "teaser" rates of less than six months in duration, and may not provide for negative amortiza1lion. Especially important is the requirement that the lender ensure that the borrower has a reasonable ability to repay the loan, and take steps to verify the borrower's income and asset information;
These measures will provide a~sistance to struggling homeowners and shOUld help prevent problems in the future. iThis bill was a priori1ty of Governor Paterson, and was a'so a priority of the Senate Banks Committee and I trust that the Governor will sign bill j
()OOOD6RETRIEVE Page 33 of38
Section 2 of the bill adds a new Real Property Actions and ProceedingsLaw ("RPAPL") § 1304 to require lenders and mortgage loan servicers tosend a notice to borrowers who took out a subprimE~ or nontraditionalloan between January 1, 2003 and September 1. 2008, at least 90 daysbefore they may commence legal action against the borrower. The noticewould provide the names and telephone numbers of housing counselingagencies approved by the United States Department of Housing and UrbanDevelopment ("HUD") or designated by the Division of Housing and Commu-nity Renewal ("DHCR") and serving the borrower's area.
Section 3 of the bill adds a new CPLR Rule 3408 to require a court, in aresidential foreclosure action involving a subprinle or a non-traditionalhome loan made between January 1, 2003 and September 1, 2008, to sched-ule a settlement conference within 60 days of when the proof of serviceof the complaint is filed with the county clerk's office. The plaintiff,or a representative with authority to settle the matter, must appear atthe conference. The court may allow the plaintiff's representative toappear via phone or video-conference. If the homeowner appears and isnot represented by counsel, he or she would be deemed to have made amotion to proceed as a "poor person" under CPLR § 1101, and the judgemay relieve the defendant of certain procedural court requirements andappoint counsel under CPLR § 1102(a).
Section 3-a of the bill allows those homeowners against whom a foreclo-
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Section 5 of the bill adds a new Banking Law § 6-rn which- (1) definesthe term "subprime home loan": (2) provides consumer protections andminimum underwriting standards for such loans; and (3) establishes anenforcement mechanism for these provisions, and remedies for violations.The bill allows the Superintendent of Banks ("Superintendent") to adjustthe. definition of subprime home loan under certain circumstances Inaddition, this provision of the bill provides an opportunity to cure aviolation to those lenders who, while acting in good faith, violateBanking Law § 6-m. The Attorney General or the Superintendent mayenforce the provisions of the new Banking Law § 6--m, and a borrower mayraise the violation of this section as a defense to foreclosure
Sections 7 through 16 of the bill amend the Banking Law to require mort-gage loan servicers to register with the Superintendent before engagingin the business of mortgage loan servicing in the state. These sectionsof the bill further empower the Banking Board to promulgate regulationsand require mortgage loan servicers to comply with the regulations.These provisions of the bill would also permit the Superintendent toinspect the books and records of registered mortgage loan servicers.
Section 18 of the bill amends General Obligations Law § 5-501 (3) (b) tomake a technical amendment related to Banking Law § 6-1 and 6-m.
Section 19 of the bill adds a new Article 187 to the Penal Law to definethe crime of residential mortgage fraud.
Section 21 of the bill amends Penal Law § 460.10(1) (a) to add violationsof the mortgage fraud statute to the predicate crimes of money launder-ing.
Section 26 of the bill adds a new Real Property Law § 265-b to preventcertain foreclosure rescue scams by prohibiting "distressed propertyconsultants" from performing services without a written and fullyexecuted consulting contract with the homeowner; and from charging oraccepting payment for consulting services before completion of services.In addition, the new Real Property Law § 265-b requires these consult-ants to provide the homeowner with an opportunity to review a contractbefore signing it, and requires that the contract be in the languagethat was used in discussions between the consultant and the homeowner,and contain a notice of the homeowner's right to cancel the contract.
EXISTIN.G__ l,AW RPAPL §§ 1303 and 1320 require that a notice be sent tothe borrower when legal action is commenced. There is no presentrequirement that borrowers receive any notice prior to the commencementof a foreclosure action, nor any requirement for an early settlementconference in such actions.If a litigant wishes to be considered for "poor person" status, thelitigant must make a motion under CPLR § 1101. If the court determinesthat the litigant is a poor person, then the court will waive certainprocedural requirements for the borrower, and may, in its discretion,appoint counsel under CPLR § 1102(a).While New York does have an Antipredatory Lending Law, Banking Law §6-1, very few subprime home loans actually receive protections underthis law.At present, an ability to pay standard has not been established in thestate for subprime home loans that are not protected under Banking Law §6-1. This standard, however, is part of strong underwriting criteriaconsidered by many lenders.Mortgage brokers do not at present have a duty of care towards borrow-ers. In addition, the State does not register or regulate any mortgageloan servicers. Furthermore, there is no defined crime of "residentialmortgage fraud" and prosecutors must typically rely on the larceny andscheme to defraud statutes to prosecute such case~;. Lastly, while thestate recently enacted the Home Equity Theft Prevention Act, that lawdid not cover distressed property consultants that often prey on home-owners at risk of foreclosure.
000009http://nyslrs.state.ny.us/NYSLBDCl/bstfrme.cgi 6/25/2008RETRIEVE Page 36 of38
consumers In exchange for false promises that they will negotiate withthe lender on the borrower's behalf or take other action that willprevent foreclosure. In fact, they often perform no such services or doanything more than, for example, advise the lender to file for bankrupt-cy.This bill would prohibit a "distressed property consultant" fromperforming services without a written and fully executed consultingcontract, and prohibit the consultant from charging for or acceptingpayment for consulting services before completing all services. The billwould further require that a consultant provide the homeowner with anopportunity to review the contract before signing it, that the contractbe in the language that was used in discussions between the consultantand the homeowner, and that the contract contain a notice of the home-owner's right to cancel the contract. Establishing these standards willhelp ensure that legitimate consultants remain in business, whileprotecting homeowners from those fraudsters who might have other~lisebeen successful in preying on them.II. Elements of the bill targeted to prevent similar future crisesA.New Banking Law §6-m The scope of the current New York State Anti-pre-datory lending law is extremely narrow. Indeed, only a handful of loansfall within its protections each year. With property values soaring inthe recent past and predatory lending practices ever-evolving, thecurrent Anti-predatory Lending Law does not provide adequate protectionsfor homeowners.This bill would add a new Banking Law § 6-m to establish standards andlimitations for lenders and brokers making "subprime horne loans." Bank-ing Law § 6-m defines the term "subprime horne loan" as a horne loan inwhich he fully indexed annual percentage rate exceeds by more than .75percentage points for a first lien loan, or by more than 175 percentagepoints for a subordinate lien loan, the average conunitment rate forloans in the northeast region with a comparable duration to the durationof such home loan, as published by the Federal Home Loan Mortgage Corpo-ration ("Freddie Mac") in its weekly Primary Mortgage Market Survey ("PMMS"). This definition of subprime home loan would target the newprotections to specific loans, while not intruding into the primemarket.This bill applies certain standards and prohibitions to "subprime homeloans" including; (a) no prepayment penalties, (b) no abusive yieldspread premiums; (c) no option adjustable rate mortgages where one ormore options causes the principal balance to increase; (d) no loan flip-ping; and (e) no negative amortization. The bill would also require theescrow of taxes and insurance and the timely disclosure taxes and insur-ance paymentsThis section of the bill would also establish an "ability to pay'.standard for making and arranging all subprime home loans. Under thebill, lenders would have to make a reasonable and Eood faith determi-nation of the borrower's ability to repay the loan, including the prin-cipal, interest, taxes, insurance, assessments, points and fees, basedupon the borrower's income, employment status and other financialresources. The borrower's ability to pay would be verified based on taxreturns, payroll receipts or other third-party income verification.The Attorney General and the Superintendent would be permitted toenforce the provisions of this statute and homeownE,rs would be permittedto raise a violation of Banking Law § 6-m as a defense to foreclosure.B Standards for Mortgage Brokers One of the major causes for the currentmortgage crisis is that borrowers were placed into loans they could notafford. While many lenders adhered to strong under~lriting standards,other lenders did not. Unscrupulous lenders and brokers sometimes placedborrowers into loans that were more costly than loans the borrowerswould have otherwise qualified for.
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This bill would also establish a general duty of care for mortgage brokers with regard to all home loans. For example, this bill would require brokers to: (1) act in the borrower's interest; (2) act with reasonable care, skill and diligence; (3) act with good faith and fair dealing; (4) not accept, give, or charge any undisclosed compensation; (5) disclose all material facts known to the broker that might reason- ably affect the borrower's rights, and interests; and (6) diligently work to present a range of loan products for which the borrower likely qualifies and which are appropriate for the borrower's circumstances. The ability to pay standard along with the mortgage broker duty of care would help prevent borrowers from being steered into home loans they cannot afford. C.Registration of Servicers Mortgage loan servicer:s perform administra- tive functions for the owner of the mortgage and the note, such as collecting checks and crediting payment. Even thoucJh mortgage loan servicers perform a central function in the mortgaqe industry, they are not at present regulated by the state. This bill would require mortqaqe loan servicers to be reqistered with the Superintendent in order to enqaqe in the business of mortgaqe loan servicinq. The bill would further require mortgage loan servicers to engaqe in the business of servicinq mortqaqe loans in conformity with the rules and requlations promulqated by the Banking Board. D Mortgage Fraud There currently is no separate Penal Law provision expressly prohibitinq residential mortqage fraud, and thus prosecutors must bring such cases under different theories, such as scheme to defraud and larceny. This bill therefore seeks to simplify such prose- cutions by explicitly defining and criminalizinq the act of residential mortqaqe fraud. In particular, the bill would define residential mortqaqe fraud as conduct in which a person, knowinqly and with intent to defraud, amonq other things, presents, or causes to be presented a written statement that the person knows contains materially false information, or conceals, for the purpose of misleadinq, facts that are material. Under the bill, the maqnitude of the fraud may be agqregated and stiffer penalties may be sought by prosecutors. In addition, while under the scheme to defraud theory the most a person may be charqed with is a Class E felony, this bill would allow a person quilty of residential mortqage fraud in excess of Sl million to be charged with a Class B felony. However, the bill provides that a person does not commit mort- qaqe fraud when he or she is actinq to obtain a residential mortqage loan and intends to occupy residential property, althouqh criminal liability is not precluded for a person actinq as an accessory to an individual or entity committinq a crime under Penal Law Article 187.
000012 http://nyslrs.state.ny.us/NYSLBDC 1/bstfrme. cgi 6/25/2008--~--~----------------~ DIVISION OF THE BUDGET BILL MEMORANDUM
SENATE: ASSEMBLY:No. 8143-A No.
This bill amends various State laws in order to reduce the incidence of residential mortgage foreclosure upon homes financed with "sub-prime" mortgages or "high cost" home loans. The bill addresses current and prospective residential mOirtgage foreclosure issues that these financial products present by enhancing consumer protections afforded to existing "sub-prime" or "high cost" home loan borrowers and by enhancin~1 existing regulations and legal sanctions that will govern the origination, structure and operation of these kinds of loans.
2. Summary of Provisions:
Sections 1 through 2 of the bill amends Real Property Actions and Proceedings Law and Civil Practice Law and Rules to require plain language in a foreclosure summons stating that the homeowner is at risk of losing their home and to require sub-prime and high cost lenders to provide 90 days written advance notice of a foreclosure action.
Sections 3 through 3a of the bill amend Real Property Actions and Proceedings Law and Civil Practice Law and Rules to require settlement conferences between borrowers and lenders as part of the legal foreclosure process.
Sections 4 and 4a amend Banking Law to provide additional consumer protections for "high- cost" home loans borrowers including prohibitions of prepayment penalties or mandatory financing of other services (such as insurance or credit monitoring) that the lender may offer to the borrower.
Section 5 adds a new Section 6-m to the Banking Law to define the term "subprime home loan", establishes minimum underwriting standards to determine a consumer's "ability to pay" for a "sub-prime" mortgage and establishes additionall consumer protections associated with subprime loans.
/000013 Section 6 adds a new Section 590-b to the Banking Law to delineate the legal responsibilities of mortgage brokers to serve and protect the interests of borrowers and making lenders liable for damages to borrowers should the lender violate these provisions.
Sections 7 through 16 amend the Banking Law to newly regulate the provision of mortgage loan servicing within the State, including a requirememt that mortgage servicers register with the Banking Superintendent prior to commencing operations in the State and provide their accounting records to the Superintendent for examination.
Section 17 amends Real Property Actions and Proceedings Law (RPAPL) to require that plaintiffs in sub-prime foreclosure affirm to the borrower that the plaintiff either owns the mortgage loan in question or has been authorized to act on the lender's behalf.
Section 18 amends General Obligations Law to comport with the bill's amendments to the Banking law that prohibit pre-payment penalties on "high-cost" or "subprime" mortgage loans.
Sections 19 through 21 amend Penal Law and Criminal Procedure Law (CPL) to establish five degrees of the crime of residential mortgage fraud - the first four of which are felony offenses and the last of which is a misdemeanor offense. These sections also add the first four degrees of residential mortgage fraud to the Criminal Procedure Law (CPL) to the predicate crimes of enterprise corruption and to the Penal Law to the pre!dicate crimes of money laundering.
Sections 22 through 25 amend various sections of the Banking Law to authorize the Superintendent to refuse a license or registration for any person convicted of felony residential mortgage fraud.
Section 26 adds a new Section 265-b to the Real Property Law to establish various consumer protections and mandatory disclosures regarding services that may be provided by "distressed property consultants".
Section 27 contains a severability clause to ensure that should a court invalidate any portion of the bill, such a ruling would not impair or invalidate unrelated provisions.
3. Legislative History:
4. Arguments in Support:
U00014-5. Arguments in Opposition:
None known.
The Banking Department supports this bill. The Division of Housing and Community Renewal does not object to the bill.
The New York Banking Association does not oppose this bill.
8. Budget Implications:
If enacted, certain provisions of this bill will require the Banking Department to register and regulate mortgage loan servicers and therefore increase the Department's administrative workload. However, Banking Department staff anticipates that the increased workload associated with this bill will be accommodated within existing resources.
9. Recommendation:
No objection. This bill provides additional legal and procedural mechanisms to assist in addressing legal, financial and consumer issues associated with the operation of "subprime" and "high cost" mortgages at no additional cost to the State. Further, the provisions of this bill will act to complement the enacted SFY 2008-09 Budget that appropriated $25 million to fund subprime mortgage foreclosure prevention services for homeowners in New York State. Therefore, the Division of the Budget recommends approval of this bill.
You requested our comments and recommendation on the above-referenced bill thatamends various sections of law to address the mortgage foreclosure crisis in New York State. As amember of the Halt Abusive Lending Transactions (hereinafter "HALT") Task Force the Department ofState (hereinafter "Department") supports the proposed legislation.
In addition to its work as a member of the HALT Task Force, the Department activelyinvestigates complaints relating to predatory activity by real estate brokers and salespersons and otherregulated licensees. One fraudulent scheme commonly utilized by unscrupulous brokers andsalespersons is the 'foreclosure rescue scam." In this scenario, a licensee approaches a homeowner indefault on hislher mortgage and promises to save the home. These scams typically result in the loss ofthe home, by either foreclosure or transfer to a third party for substantially less than fair market value,and a financial windfall to the licensee. This bill endeavors to prevent this type of activity.
The bill further proposes to add a new section 265-b to the Real Property Law. This newsection will protect homeowners by requiring a written contract from 'distressed property consultants'who solicit the homeowner with respect to a distressed home loan or the potential loss of a home due tononpayment of taxes. In the Department's experience, victims of foreclosure rescue scams are notroutinely provided with a clear description of the services offered. By requiring that a contract be issuedin the homeowner's native language, the bill will help to ensure that this protection is afforded to allhomeowners.
Based upon the foregoing, the Department of State recommends approval of this bill.
MWT/WC/melCc: Amanda Hiller, Esq. Susan L. Watson, Esq.
000016 NYBA New York Bankers Association
99 Park Avenue
email firstname.lastname@example.com Honorable Terryl Brown ClemonsActing General Counsel to the Governor Michael P. SmithExecutive Chamber PresidentState CapitolAlbany, NY 12224
The New York Bankers Association (NYBA) thanks you for the opportunity to providecomments regarding this legislation that would establish additional requirements formortgage lending in New York. Our membership is committed to the eradication ofpredatory lending, and has consistently supported strong legislation and regulationwhich would establish meaningful and workable national standards across allelements of the subprime market. We note that since S.8143-A (Farley)/A.10817-A(Towns) was passed by the New York State Leglislature in June 2008, the FederalReserve Board has approved a final rule which establishes new federal standardsfor home mortgage lending. However, we respect the State Legislature's desire tointervene in the absence of federal action.
NYBA opposed the initial version of this legislation, as well as a proposal to institutea one-year foreclosure moratorium, both of which initiatives, we believe, could haveseverely undermined New Yorkers' access to and cost of credit. Although we stillhave concerns about the unintended consequences of some of the provisions in thefinal version of S.8143-A (Farley)/A.10817-A(Towns), we believe that, as finallypassed by the New York Assembly and Senate, the legislation is substantiallyimproved from the original proposal. Our Association is comprised of the community,regional and money center commercial and savings banks doing business in NewYork State, whose aggregate assets exceed $9 trillion and which have more than300,000 New York employees.
Throughout the legislative process, NYBA consistently set forth several keyelements that we believed any final legislation should embrace: (i) uniform standards
000017The Honorable Terryl Brown ClemonsJuly 29, 2008Page 2
for the mortgage brokerage, lending and undl3rwriting process; (ii) the primemortgage market, which has been an engine of thE~ national economy, should not betargeted for further regulation, especially since the banking and thrift organizationswhich serve this market are already heavily regulated; (iii) the subprime market,which plays an important and meaningful role for many New Yorkers in achieving theAmerican dream of home ownership, should not be effectively eradicated.Additionally, we urged that any final legislation not erect additional unnecessarybarriers to the mortgage origination and credit process which will impede the abilityof banks and thrifts to meet the credit needs of the communities they serve,including the important low- and moderate-income segments. Because the finallegislation - although still overbroad and overly burdensome in some areas - hastaken meaningful steps towards these objectives, we have lifted our opposition tothis legislation. Our remaining thoughts and conCE~rns are set forth below:
Although the thresholds in the legislation remain lower than we think are appropriate,the "measuring stick" has been changed from a comparison to comparable Treasuryyields, to a comparison to the average commitment rate for loans in the northeastregion with a comparable duration, as published by Freddie Mac in its weeklyPrimary Mortgage Market Survey (175 basis points above the Freddie Macstandard for first loans, and 375 basis points above for subordinate loans.) Webelieve that this is a far more accurate measure of actual mortgage rates, andshould help limit - - although regrettably, not eliminate - the number of prime loansthat inadvertently and inaccurately fall into the new "subprime" loan category createdby the legislation. The superintendent has also been given authority to raise thethresholds to maintain parity with national banks or should the current standardshave a negative impact on the availability of mortgage loans in New York. Thisauthority further enhances the superintendent's broad existing powers under NewYork's "wild card" law to take action when necessary to maintain parity betweenstate and federally chartered institutions. VVe think this is a very important tool tohelp maintain the vibrancy of the State charter as well as the mortgage lendingmarket in New York.
Importantly, the final legislation does not include a one-year moratorium, which webelieve could have had a disastrous impact on New York's housing market anddistressed homeowners, as well as on the health and vitality of our State's localcommunities. Rather, the legislation requires a 90-day pre-foreclosure notice for allhigh cost loans as well as for all subprime and non-traditional (option adjustable andinterest only) loans made between January 1, 2003 and September 1, 2008. Thelegislation also requires a mandatory settlement conference for high cost, subprimeand non-traditional loans made between January 1" 2003 and September 1, 2008. Itis unclear that the new requirements will, as intended, encourage borrowers to
000018The Honorable Terryl Brown ClemonsJuly 29, 2008Page 3
participate in workout discussions, and reduce the number of New Yorkers who losetheir homes to foreclosure. We fear that new procedures, particularly the mandatorysettlement conferences, may create a further backlog in the State's court system,and extend unnecessarily a foreclosure process, which already is the longest in thenation. However, we have pledged to work cooperatively with the Office of CourtAdministration on the development of appropriatE~ guidelines, which we hope willensure that such conferences will not be repeatedly adjourned if borrowers fail toappear or appear without appropriate financial information, in order that the laudablegoals of these provisions are achieved.
Similarly, because enforcement has been left with the superintendent of banks andthe attorney general, and because the final legislation contains neither a right ofrescission, a private right of action, nor a right to collect consequential damages - asthe original proposal did - we believe the potential negative impact on the availabilityof mortgage credit in New York as a result of this legislation, has been significantlyameliorated. At the same time, because borrowers may still assert any violation ofthe law as a defense to foreclosure in an action brought by a lender or an assignee,consumers rights' are more than adequately protected.
Importantly, because the newly established crime of mortgage fraud does notexempt the borrower, as the original proposal did, the legislation should be aneffective and comprehensive tool in the fight agailnst predatory lending and illegalborrowing practices.
Despite the many improvements in this legislation, we remain concerned that theprovisions banning prepayment penalties for all high cost and subprime loans -though well intended - will have unintended negative consequences for manyborrowers. Currently, New York law only allows a prepayment penalty to beassessed if such prepayment takes place within the first year of the mortgage term.Despite this short period of enforceability, agreeing to this option, nevertheless,provides many borrowers with the opportunity to receive an overall lower interestrate than would otherwise be available to them.. By eliminating this option, many
000019The Honorable Terryl Brown ClemonsJuly 29, 2008Page 4
borrowers - who would never actually have been penalized by the inclusion of thisprovision in their mortgage terms - will now face higher interest charges than wouldotherwise have been necessary.
We also are concerned that the implementation dates for many of the legislation'sprovisions will create significant operational challenges for many financialinstitutions. We respectfully request, therefore, that consideration be given toextending those implementation dates that are currently set for September 1, 2008until at least January 1, 2009.
.. . ' ''--
000020 . " .. .. ~ '.:;"'~ ~ .. ". ~. - OeIIII1 NEW YORK STATE BA.R ASSOCIATIONNYSEA One Elk Street, Albany, New York 12207 • 518.4633200 • www.nysba.org
BERNICE K. LEBER PresIdent, New York State Bar Association
Re: S8143-A1AI0817-A
With 74,000 members, the New York State Bar Association ~s the largest voluntary statebar association in the country. The State Bar promotes the interests of the legalprofession as well as the public, and to that end, serves as a respected resource for stateand federal policymakers. With its twenty-four Sections and fifty-eight Committees, theState Bar and its members cover virtually every area of the law. Notably, over manydecades, this Association has produced thoughtful commentary and views on existinglaw, pending legislation and policy issues in the hope that the Governor, the Legislatureas well as state agencies and public benefit corporations may be better informed and inso doing, may further serve the public interest. To these ends, I submit two memoranda,from the Real Property Law Section (RPLS) and the President's Committee on Access toJustice (PCAJ), regarding the above-referenced legislation.
I commend you and the Legislature for your efforts to address issues relating to the "sub-prime mortgage crisis." As pointed out by the RPLS's memoranda, "[i]t is clear that thisbill is needed to address an unprecedented crisis of primary home foreclosures,destabilization of entire neighborhoods, physical displacement of families and the "-imposition of immediate and unsustainable burdens on essential services like shelters,schools, food pantries and other social and governmental agencies."
000021... -~~
0" IIIII NEW YORK STATE BAR ASSOCIATION NYSBA One Elk Street, Albany, New York 12207 • 518.463.3200 • www.nysba.org
Memorandum in Support
AN ACT to amend the real property actions and proceedings law, the civil practice law and rules, the banking law, the general obligations law and the real property law, in .relation to home mortgage loans; and to amend the penal law and the criminal law, in ~relation to creating new crimes relating to mortgage fraud
LA W AND SECTIONS REFERRED TO: adds section 1304 and amends section 1302 .of the real property actions and proceedings law; adds section 3408 of the civil practice law and ~les; amends sections 6-1, 590, 78, 592, 592-a mId 599-c and adds sections 590- b and 595-b of the banking law; amends section 5-501 of the general obligations law; adds article 187, sections 187.00-187.30 and amends section 460.10 of the penal law; amends section 700.05 of the criminal procedure law; and adds section 265-b of the real property law
The Governor's Program Bill #44 on Foreclosures ("the Bill") is needed to address an unprecedented crisis of primary home foreclosures, destabilization of entire neighborhoods, physical displacement of families, an~ the imposition of immedi<\.te and unsustainable burdens on essential services lil<:e shelters, schools, food pantries and other social and governmental agencies. The President's Committee on Access to Justice ("PCAJ") submits that a critically necessary component of the Bill is the provision for mandatory settlement conferences.
Opinions expressed are those of the Section/Committee preparing this memorandum/report and do not represent those of the New York State Bar Association unless and until they have been adopted by its House of Delegates or Executive Committee.
However, questions have been raised as to whether mandatory settlement conferences are feasible. They are.
1. It is unfortunate that the Bill does not provide funding for assignment of counsel for indigent homeowners. Nevertheless, the foreclosure crisis is leading to a growing number of lawyers, pro bono and those associatled with legal services programs, being trained in this area·ofthe law, and the mandatory conferencing provisions of the Bill will not increase the number of lawyers needed until 2009.
(b) The lack of staff legal services lawyers and trained pro bono private lawyers to represent homeowners in subprime foreclosum cases is being addressed. New York allocated $25 million in this year's budget to fund legal services and housing counseling agencies to help homeowners with subprime loans, the loans causing today's crisis. This funding is scheduled to be dispersed by the end of the summer. Other funding sources have also allowed legal services program and counseling agencies to hire new advocates. Pro bono panels are developing across the state and are quickly training private lawyers to respond to the growing need. The expectation is that resources will increase further in time.
000023instrumental role in working up budgets with homeowners to evaluate whether the homewould be affordable if the loan was reformed with reasonable terms.Already counselors are working effectively with legal services lawyers and refer viablecases. Pro bono and privately trained attorneys could also work with housing counselorswho could assist them in making sure that reasonable and fair settlements are reached.
(a) In her testimony Judge Pfau stated that "requiring expedited courtconferences in every residential foreclosure in all 62 counties would impose a significantburden on the court system that we are not equipped to handle on short notice." ThepeAJ does not treat this concern lightly. However, Federal Reserve data shows that inOctober, 2007, 67% of the pending sub-prime foreclosures were venued in only 5counties (Suffolk, Queens, Kings, Nassau and Bronx). Only 16 counties each had morethan 100 pending sub-prime foreclosures, and these accounted for 90% of the statewidesub-prime foreclosure total. In addition to NYC and Long Island, these higher-volumecounties are in the lower Hudson Valley, the Capital District, and Erie, Monroe andOnondaga Counties. In short, the problem for the court system is a limited and focusedone.
3. While there could be logistical and practical problems for lenders and loanservicers to be required to appear in person at the conferences, Judge Pfau has suggestedthat they could attend via teleconference, a suggestion that the PCAl supports.
4. There is no reason to assume that the settlement process would unduly prolongthe foreclosure process. Indeed, in cases in which the defendant has no valid defense or itis apparent at the time of the conference that the defendant cannot afford to keep the
000024~ -, .
home, the lender would be free to proceed as normal. In cases in which the conference results in a settlement, the foreclosure process would end, far sooner than it would have otherwise. Beyond all of this, however, the PCAl strongly believes that in a foreclosure crisis allegedly caused in large part by fraudulently inflated appraisals and other schemes, there should be no rush to judgments.
5. Given what is at stake in foreclosure cases, the PCAl believes that the settlement conference process would result in greater aCCiess to justice. The home is generally a low or moderate income family's greatest financial asset, and it is the determination of so much more in one's life. It provides stability for a family, designates the school that children will attend, and homeownership builds communities. The loss of . a home is shattering, and homeowners should be provided with the best opportunities to avoid losing their homes. Bringing the real parties together in a court mediated resolution process to find a rational, mutually beneficial solution achieves justice, and it makes sense.
Based on the foregoing, the President's Committee on Access to Justice SUPPORTS this legislation.
* Mr. Getnick abstained from voting when the Committee approved this memorandum.
000025 e .IIII1 NEW YORK ST A TE BAR ASSOCIA TIONNYSBA One Elk Street, Albany, New York 12207 • 518.463.3200 • www.nysba.org
Memorandum in Support
LAW AND SECTIONS REFERRED TO: adds section 1304 and amends section 1302 of the real property actions and proceedings law; adds section 3408 of the civil practice law and roles; amends sections 6-1, 590,78,592, 592-a and 599-c and adds sections 590- band 595-b of the banking law; amends section 5-501 of the general obligations law; adds article 187, sections 187.00-187.30 and amends sectllon 460.10 of the penal law; amends section 700.05 of the criminal procedure law; and adds section 265-b of the real property law '
, "
Opinions expressed are those of the Section/Committee preparing this memorandum/report and do notrepresent those of the New York State Bar Association unless and until they have been adopted by its House of Delegates or Executive Committee.
00002G~I. Assisting Homeowners Currently At Risk of Foreclosure
This bill seeks to address the mortgage foreclosure crisis in New York State by
Lenders and loan servicers argue that they already send out several notices beforecommencing legal action. The pre-foreclosure notice requirement should not thenimpose a material burden on lenders and servicers and by directing borrowers tocounseling agencies, the pre-foreclosure notice may help both the borrower and thelender to reach an early resolution.
New York courts are already looking at judicial conferences as a way of reducing thebacklog of pending foreclosure actions. However, although she believes suchconferences would be very helpful and would like to find a way to make them work,Chief Administrative Judge Ann Pfau has testified that the courts do not have theresources to hold early settlement conferences and it is unrealistic to expect thatborrowers will be able to obtain adequate legal representation. Moreover, settlement of aforeclosure action at a conference requires an accurate financial picture of the borrowerand, for a conference to be productive, prior to any such conference, the lender andservicer must receive and review appropriate financial information regarding theborrower, ~.g. tax returns, proof of employment and financial statements. In addition,lenders and loan servicers will have logistical and practical problems with appearing in
ooorr21 person. Finally, there is a legitimate concern that the court may continue, adjourn or otherwise enlarge the time for conferences. For these reasons, the Real Property Law Section is strongly in favor of voluntary, consensual conferences and expects that the pre- foreclosure notice requirement will lead to the involvement of counseling agencies which will in turn lead to conferences without judicial involvement. Accordingly, the Real Property Law Section proposes that the bill be amended to delete the requirement for mandatory settlement conferences.
(c) requiring with respect to all home loans that no lender or mortgage broker shall make or arrange a home loan without first making a reasonable and good faith detennination that the borrower has a reasonable ability to pay.
The bill expands the reach of the restrictions and prohibitions beyond "high-cost home loans" to include a broader range of loans, "non-conventional home loans." The Real Property Law Section is particularly concerned by the large number of loans which might be considered "non-conventional" since the bill defines a non-conventional home Joan as a home loan in which the annual percentage rate at consummation exceeds by more than three percentage points for a first-lien loan, or by more than five percentage points for a subordinate-lien loan, the yield on treasury securities having a comparable maturity to the loan maturity. By expanding the reach to an additional category of loans, this bill may cause an additional class of borrowers and prospective home owners to lose their access to credit as lenders curtail or even cease lending to this category of borrowers. Moreover,
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It is clear that this bill is needed to address an unprecedented crisis of primary home foreclosures, destabilization of entire neighborhoods, physical displacement of families and the imposition of immediate and unsustainable burdens on essential services like shelters, schools, food pantries and other social and governmental agencies.
At the same time, the Real Property Law Section recognizes the need to avoid impairing lending in the longer term and to assure the availability of credit where appropriate and the ability of mortgage lenders to provide affordably priced mortgage loans to qualified home buyers.
For these .reasons, the Real Property Law Section proposes that this part of the bill be amended to (i) change the definition of "non-conventional home loan" to use four percentage points over treasuries for a first lien and six percentage points over treasuries for a subordinate lien, and (ill include a sunset provision" requiring the legislature to re- examine the need for these restrictions and prohibitions after the crisis has passed. The Section proposes a two-year period after which non-conventional home loans would cease to be covered.
The Real Property Law Section of the New York State Bar Association has reviewed this proposed legislation, has appointed a special task force to study this legislation, has received and reviewed the recommendation of said task force and supports the passage of this legislation if amended as described.
.Based on the foregoing, the Real Property Law Section SUPPORTS this legislation IF AMENDED TO DELETE THE REQUIREMENT FOR MANDATORY SETTLEMENT CONFERENCES, TO CHANGE THE DEFINTION OF NON· CONVENTIONAL HOME LOAN AND TO ADD A SUNSET PROVISION.
{iOOD2£J STATE OF NEW YORK BANKING DEPARTMENT One State Street NEW YORK, NY 10004-1417
Section 2 of the bill adds a new RPAPL § 1304 to require lenders and mortgage loanservicers to send a notice to borrowers who took out a high cost home loan, or took outa subprime or nontraditional loan between January 1, 2003 and September 1, 2008, atleast 90 days before commencing legal action against the borrower. The notice wouldprovide the names and telephone numbers of housing counseling agencies approvedby the United States Department of Housing and UrbanDevelopment ("HUD") or designated by the Division of Housing and CommunityRenewal ("DHCRn) and serving the borrower's area.
U00030Section 3 of the bill adds a new CPLR Rule 3408 to require a court, in a residentialforeclosure action involving a high cost, subprime or a non-traditional home loan madebetween January 1, 2003 and September 1, 2008, to schedule a settlement conferencewithin 60 days of when the proof of service of the complaint is filed with the countyclerk's office. The plaintiff, or a representative with authority to settle the matter, mustappear atthe conference. The court may allow the plaintiff's representative to appear via phone orvideo-conference. If the homeowner appears and is not represented by counsel, he orshe would be deemed to have made a motion to proc:eed as a "poor person" underCPLR § 1101, and the judge may relieve the defendant of certain procedural courtrequirements and appoint counsel under CPLR § 11 02(a).
Section 3-a of the bill allows those homeowners against whom a foreclosure action on asubprime or high cost home loan has already been commenced to also request andobtain a settlement conference. Sections 4 and 4-a of the bill make certain changes toBanking Law § 6-1 to conform the consumer protections for high cost home loans tothose established by the bill for subprime home loans.
Section 5 of the bill adds a new Banking Law § 6-rn which- (1) defines the term"subprime home loan": (2) provides consumer protections and minimum underwritingstandards for such loans; and (3) establishes an enforcement mechanism for theseprovisions, and remedies for violations. The bill allows the Superintendent of Banks("Superintendent") to adjust the definition of subprimei home loan under certaincircumstances. In addition, this provision of the bill provides an opportunity to cure aviolation to those lenders who, while acting in good faith, violate Banking Law § 6-m.The Attorney General or the Superintendent may enforce the provisions of the newBanking Law § 6-m, and a borrower may raise the violation of this section as a defenseto foreclosure.
Section 6 of the bill adds a new Banking Law § 590-b to establish certain responsibilitiesfor lenders and mortgage brokers. In particular, this section of the bill establishes: (1) aduty of care for mortgage brokers in soliciting, placing, processing and arranging homeloans; and (2) standards for lenders and mortgage brokers in their dealings withappraisers. Section 6 of the bill further establishes remedies for violations of theseprovisions, and allows the Attorney General or Superintendent to enforce the provisionsof Banking Law § 590-b.
Sections 7 through 16 of the bill amend the Banking L.aw to require mortgage loanservicers to register with the Superintendent before engaging in the business ofmortgage loan servicing in the state. These sections of the bill further empower theBanking Board and, where specified, the Superintendent to promulgate regulations andrequire mortgage loan servicers to comply with the regulations. These provisions of thebill would also permit the Superintendent to examine the books and records ofregistered mortgage loan servicers.
Section 17 of the bill amends RPAPL § 1302 to extend its application to subprime loans.Plaintiffs in a legal action brought under Article 13 of the RPAPL will be required to
000031make an affirmative allegation that at the time the proceeding is commenced the plaintiffis the owner and the holder of the mortgage and note, or has been delegated theauthority to institute a mortgage foreclosure action by the owner and holder of themortgage and the note. In addition, plaintiffs in foreclosure actions involving subprimeloans will be required to make an affirmative allegation of compliance with Banking Law§ 6-m and RPAPL § 1304. This section of the bill further provides that a violationBanking Law § 6-m or RPAPL §1304 will be a defense to a subprime foreclosure action.
Section 18 of the bill amends General Obligations Law § 5-501 (3)(b) to make atechnical amendment related to Banking Law § 6-1 and 6-m.
Section 19 of the bill adds a new Article 187 to the Penal Law to establish and definethe crime of residential mortgage fraud.
Section 20 of the bill amends Criminal Procedure Law § 700.5(8)(b) to add residentialmortgage fraud in the first, second, third and fourth degrees as predicate crimes in thecrimes of enterprise corruption.
Section 21 of the bill amends Penal Law § 460.10(1 )(a) to add violations of themortgage fraud statute to the predicate crimes of money laundering.
Sections 22 through 25 of the bill amend various sections of the Banking Law that allowthe Superintendent to refuse a license or registration to a person for having committedcertain named felonies to add residential mortgage fraud to the named felonies
Section 26 of the bill adds a new Real Property Law § 265-b to prevent certainforeclosure rescue scams by prohibiting "distressed property consultants" fromperforming services without a written and fully executed consulting contract with thehomeowner; and from charging or accepting payment for consulting services beforecompletion of services. In addition, the new Real Property Law § 265-b requires theseconsultants to provide the homeowner with an opportunity to review a contractbefore signing it, and requires that the contract be in the language that was used indiscussions between the consultant and the homeowner, and contain a notice of thehomeowner's right to cancel the contract.
Section 28 of the bill provides for the effective date of various provisions of the bill.
Comments: Both New York State and the nation as a whole face anunprecedented mortgage foreclosure crisis. Statistics for New York bear witness to thisphenomenon. In 2007 there were 57,000 foreclosure filings affecting almost 39,000homes, representing a 10% increase in foreclosure filings from the previous year and a55% increase over two years. Importantly, the rate of 'foreclosures continues toincrease, with results for the first quarter of 2008 showing a 14% increase over the priorquarter.
000032S.8143 embodies a two-pronged strategy aimed at both the present and the future. Firstit focuses on existing homeowners facing foreclosure. The proposed changes affect realproperty and other laws that are especially appropriate for action at the state level.Specifically, since many borrowers have no personal contact with their lender during theforeclosure process, the bill requires that the lender send a pre-foreclosure notice, withthe names of housing counselors, 90 days prior to the initiation of foreclosureproceedings on a high cost, subprime or non-traditional home loan. As an additionalsafeguard, the bill creates another opportunity for a rE3solution through a mandatorysettlement conference; the court must hold a settlement conference within 60 days ofthe answer date.
S.8143 also takes several important steps toward preventing future crises. In addition toexpanding the scope of consumer protections in Section 6-1 of the Banking Law, whichis New York's predatory lending statute, this bill would add a new Banking Law § 6-m toestablish standards and limitations for lenders and brokers making "subprime homeloans." Banking Law § 6-m defines the term "subprime home loan" as a home loan inwhich the fully indexed annual percentage rate exceeds by more than 1.75 percentagepoints for a first lien loan, or by more than 3.75 percentage points for a subordinate lienloan, the average commitment rate for loans in the northeast region with a comparableduration to the duration of such home loan, as published by the Federal Home LoanMortgage Corporation ("Freddie Mac") in its weekly Primary Mortgage Market Survey('PMMS'l This provision furthers the goal of striking an appropriate balance betweenconsumer protection and the availability of affordable credit.
This bill applies certain standards and prohibitions to "'subprime home loans" including:(a) no prepayment penalties, (b) no abusive yield spread premiums; (c) no optionadjustable rate mortgages where one or more options causes the principal balance toincrease; and (d) no loan flipping. The bill would also require the escrow of taxes andinsurance and the timely disclosure of taxes and insurance payments. This section ofthe bill would also establish an "ability to pay' standard for making and arranging allsubprime home loans.
S.8143 would also establish a statutory duty of care for mortgage brokers with regard toall home loans. For example, this bill would require brokers to: (1) act in the borrower'sinterest; (2) act with reasonable care, skill and diligence; (3) act in good faith and withfair dealing; (4) not accept, give, or charge any undisclosed compensation; (5) discloseall material facts known to the broker that might reasonably affect the borrower's rights,and interests; and (6) diligently work to present a rangre of loan products for which theborrower likely qualifies and which are appropriate for the borrower's circumstances.
uooo_Mortgage loan servicers perform administrative functions for the owner of the mortgageand the note, such as collecting checks and crediting payment. Even though mortgageloan servicers perform a central function in the mortgage industry, they are not atpresent regulated by the State. This bill would require mortgage loan servicers to beregistered with the Superintendent in order to engage in the business of mortgage loanservicing.
It must be noted, however, that while the intent of the mortgage fraud provisions isclear, certain drafting errors must be addressed in order to make the statute fullyeffective. Specifically, it is our opinion that the definition of "person" in Section 19 andmay be read to effectively nullify that Section. This shortcoming must be addressed assoon as possible.
5 119 Ave ~ NY 12210 Phono 518-462.683·1 ~ Fax 518.46:26687
Legislative SecretaryExecutive ChamberNYS CapitolAlbany, NY 12224
On behalf of the Empire Justice Center, Iwrite in full support of Assembly 10817-A\Senate 8143-A. This strong piece of legislation will help Ikeep thousands of New Yorkhomeowners from losing their homes to foreclosure, as well as insure that New Yorkhomeowners are protected from many of the worst lending abuses in the subpr ime industry thatlead to the current crisis. We urge Governor Paterson to si!gn this legislation immediately.
One of the greatest obstacles has been educating hom eowners about free serviceshousing counseling services in t heir communities. For the past five years, we have been part ofthe HomeSave Coalition in the Capital District, a group made up mostly of four non-profithousing counseling age ncies from Schenectady, Albany, and Rensselaer. It has been acontinuing challenge for us to develop marketing and advertising strategies, given our limitedbudgets. The ninety-day notice is ideal in that it will give borrowers who most need theinformation, the contact information for non-profit organizations which can best assistthem.
B. Settlement conferences
000035 Mandatory settlement conferences, provided through the amending to Rule 3408 of theCivil Practice Law and Rules (CPLR) will provide homeowners a fair shake in the foreclosureprocess. Foreclosure lawyers in New York acknowledge that the vast majority of foreclosuresend in a default judgment against the hom eowner. For a myriad of reasons, including a gene rallack of understanding regarding what it means to have to file an answer in a legal proceedingand a lack of affordable legal resources for consumers, homeowners are not defendingforeclosure lawsuits. The in-person settlement conference will afford homeowners anopportunity that they can understand easily, to appear before the court and defend their home.For pending foreclosures, the opportunity to request a settlement conference should beextended to include borrowers with "non-traditional" hom e loans.
Judges and court personnel will play an integral role in insuring homeowners who canafford their homes do not lose them because they were given an unfair loan. Voluntary lenderprograms are not working. Though lenders proclaim they don't want to take peoples' homes,loss mitigation servicers don't match this theory. Perverse financial incentives exist for bothmortgage servicers and for their lawyers to foreclose, rather than to work with borrowers. Courtsupervision is necessary to make decision makers within the lending institutions cometo the table and develop workable solutions that will keep homeowners in their homes.For borrowers who have no chance of affording their ho me, the mandatory settlementconference can actually hasten the foreclosure process so that lenders can proceed morequickly to a resolution. The settlement conference process will be beneficial for both parties.
The Office of Court Administration is already in the process of instituting their pilotproject based on the settlement conference model in the bill in Queens. OCA is working withconsumer advocates, as well as with lenders' attorneys, to develop a com prehensive systemthat will ensure that the settlements are conducted in a meaningful way. The prospect ofmandatory settlement conferences is causing legal services organizations, as well as pro bonopanels across the state to ramp up their services for homeowners. Combined with the ninetyday notice and the early referrals to housing counselors and legal advocates, I am confident thatmore homeowners will get the assistance early on in the process, which is what they need tosave their hom es.
Both the 90 day notice and the sett/em ent conference provisions are perfectcomplements to the $25 million in funding that the State allocated in its 2008 budget to fortifynon-profit housing counseling ag endes and legal services organ izations to provide directassistance to homeowners with subprime loans.
C. Averment of standing We also support the amendment to section 1302 ofthe Real Property Actions andProceedings Law to ensure that the plaintiffs in foreclosure actions are the actual and realowners and holders of the notes. There has been significant news coverage regardingforeclosing parties actually lacking standing to file lawsuits. This provision is important toenable homeowners to identify the entity that owns their loan as well. It is unclear whether thelanguage is sufficient to reach that end when a plaintiff is allowed to aver they have beendelegated the authority. It would be helpful to clarify this provision to require the plaintiff be theowner and holder of the loan.
Provisions in the bill regarding mortgage servicers. including the requirement that theybe registered with the Banking Department and giving the Banking Department authoritypromulgate regulations and oversee these com panies will help ensure that homeowners aretreated fairly. With the surge of subprime lending came an increase in abusive mortgage
2 000036servicing practices, including the failure to properly apply payments, problems with escrowaccounting and poor cu stomer service. Often a homeowner's troubles with their loan arecoupled with troubles with their mortgage loan servicing. We encourage the Governor and theState to follow-through with strong oversight of this industry.
We also support the addition of section 265-b to the Real Property Law (RPL).Regulation of "distressed property consultants" also is a much needed provision and will preventmany homeowners from losing savings to unscrupulous players trying to profit off of the growingforeclosure crisis, savings that could be better spent helping to cure mortgage arrears. Manyconsultants give unrealistic expectations and provide no greater, and often far worse, servicethan is provided by the housing counseling agenci es that the State will be funding to providefree services to homeowners. The regu lations are very reasonable and make sense. Wesupport the provisions set forth to amend the Real Property Law to regulate "distressed propertyconsultants."
III. Regulations for Prospective Lending Practices Will Prevent Abusive Lending
One of the most important of these provisions is the mandate that lenders make loansthat borrowers can afford, a simple, straight-forward concept that was abused more than anyother lending practice, in the subprime boom. A borrower's ability to repay needs to be judgedrealistically, honestly and for the foreseeable future of the loan. It is not difficult to verify aborrower's income. When assessing the affordability of loans with adjustable rate mortgages,the lender should be looking at whether the borrower will be able to afford the monthly paymentonce the initial fixed rate ends and the payment readjusts. We support the definition of "fUllyindexed rate" and suggest that it be further clarified to ensure that lenders take into accountmarket variables such as an unchara cteristically low index that may exist at a given point intime.
The other limitations and prohibitions set forth in Sections 4 and 5 of the bill applying towill go a long way to protecting homeowners. We support all of these provisions includingprohibiting loans that negatively amortize, limiting advanced payments, no financing of creditinsurance and other products that have been historically abused as a way to increase profits, noprepayment penalties and the mandatory disclosure of and inclusion of a tax and insuranceescrow into the monthly payment. We encourage lenders to initiate this practice sooner thanthe effective date of July 1, 2010 as set forth in the bill. It would be helpful for all prohibitions for"high-cost" home loans to be explicitly extended to "subplrime loans" including restrictions onballoon payments and home improvement contracts, limitations on points and fees financed upfront in the loan, and the statutory notice language to be sent to homeowners being soldsubprime loans.
We'd like to note that significant abusive lending practices that are not explicitlyprohibited in the bill still exist. Lenders should be prohibited from steering borrowers intornoreexpensive loans than their credit warrants. In addition, yield spread premiums should be·prohibited outright in "high-cost," "subprime," and "non-traditional," home loans. While yieldspread premiums may be a tool in the prime lending world for borrowers to negotiate terms, inthe subprime world they are a nefarious and almost uniformly abused product to pushhomeowners into higher cost loans. Homeowners have 110 understanding what "YSP" on their
(;OOD31·loan document means. We also have never seen a loan in which a yield spread premium waspaid in which a borrower didn't also pa y a separate fee to the broker out of the loan procee ds.
B. Covered loans We support the definition of "subprime" home loan at 175 basis points over the primerate for first lien loans. This threshold will ensure that the prime market will not be affected bythese new regulations. We recommend these limitations and prohibitions be extended to coverthe full gamut of abusive lending products including payment option adjustable rate mortgagesthat will not fall within the definition. We also encourage the extension of these prohibitions tocover home equity lines of credit (HELOC's).
D. Remedies Regarding remedies, we believe the bill falls short in providing adequate remedies forhomeowners. We support provisions that allow the borrower to raise defensive claims inforeclosure against the current holder of the loan. It is critical that the legislation has providedthis remedy for homeowners. These provisions also will hold Wall Street accountable for theirrole in underwriting and securitizing these loans and will ultimately foster greater self-policing ofthe lending process by the mortgage lending industry. However, statutory damages should be included f or violations of the law for all loans.Actual damages are difficult to prove and may not provide borrowers with real relief. The rightto rescind the loan should be explicitly extended to homeowners with subprime loans forviolations of the act. Rescission is a powerful too that allows homeowners a real opportunity tonegotiate a reasonable loan modification with the current holder of their loan.
IV. Conclusion Thank you very much for the opportunity to comment on this critical piece of legislation.We commend the legislature and the Governor's office for their hard work in reaching thishistorical agreement. While we have identified a number of areas we would like to seestrengthened over the course of the coming year, Empire Justice remains strongly supportive ofA.10817-NS.8143-A and we encourage the Governor to sign the bill into law.
Kirsten E. Keefe Senior Staff Attorney
4cc: Honorable Terryl Brown Clemons Acting Counsel to the Governor Executive Chamber Albany, New York 12224
000039 I:mpirf J:ic~ (~nt~r'" Making the law work for all New Yorker~ Albany + Rochester + White Plains + Long Island
On behalf of the staff and clients of Empire Justice Center, I want to thank you for making the subprime mortgage lending and foreclosure crisis a priority this legislative session. Once enacted, your Program Bill #44 (S.8l43/A.I 0817) will go a long way to help thousands of New York homeowners preserve their homeownership.
We greatly appreciate the time and work you and your staff devoted to this landmark legislation. It was a pleasure to work with Laura Lefebvre, Charlotte Hitchcock, Gaurav Vasisht, Cassie Prugh, as well as members of the Banking Department. As advocates, we also truly appreciated being asked for our input as the legislation was developed and negotiated.
AnneEri~~ President and CEO
r -~-1-~--:: ~ . '" ~p~ho:n~e518.462.6831 + Fax 518.462.6687 www.empirejustice.Org State of New York Mortgage Agency New York State Housing Finance Agency New York State Affordable Housing Corporation
By Email email@example.com
The New York State Housing Finance Agency· ("HFA") and the State of New YorkMortgage Agency ("SONYMA") have no comment with. respect to the above referenced bill.8.8143 relates to new regulations of certain types of home mortgage loans that would not impactHFA or SONYMA mortgages.
If you wish to discuss this bill, or if we can otherwise assist you, please feel free tocontact me at (212) 688-4000, ext. 350.
U0004l ....,:, THE CITY OF NEW YORK OFFICE OF THE ~YOR NEW YORK, N. Y. 10007
The City of New York strongly supports this legislation and its primary goal of addressing themortgage foreclosure crisis in New York State. This bill, which heavily impacts City residents, representsthe most comprehensive and meaningful approach yet taken to address the subprime mortgage andforeclosure crisis.
The legislation addresses the crisis with a bold, two- pronged approach: providing curative reliefto homeowners in danger of losing their homes through forec:losure and adopting preventative measuresthat bar the unsound lending practices that precipitated the cris1is.
In 2007 alone, New York City's approximately 18,000 foreclosure actions accounted for morethan half the state's filings. l According to a 2007 report to the United States Conference of Mayors andthe Council for the New American City, the New York metropolitan region stands to suffer more than $10billion in losses relating to the mortgage crisis, taking into account losses from employment, taxes,spending and property values. 2
1 http://cityroom.blogs.nytimes.com/2008/02/11/subprime-crisis-festers-in-new-york/2 The Mortgage Crisis: Economic and Fiscal Implications for Metro Areas by Global Insight for the U.S. Conference of Mayors and the Council for the NewAmerican City, November, 2007
000042Hon. David Paterson S.8143-AJuly 31, 2008Page 2
Curative measures in this bill address the mortgage foreclosure crisis in New York by establishingforeclosure prevention opportunities for homeowners at risk of losing their homes by mandating theholding of settlement conferences to give the parties an opportunity to renegotiate the terms of the loanrather than simply foreclose on the property. This provision will have a dramatic impact on establishing agreater balance of power between consumer and lender in the negotiations of a workout arrangement onproblematic loans.
Preventative measures in the legislation include the foHowing key provisions that are designed toprevent future abuses in the system:
• Strengthening the Banking Law by expanding it to cover the newly defined subprime mortgages. • Establishing tougher standards that lenders and mortgage brokers must follow to prevent borrowers from being placed into unaffordable home loans. • Requiring the registration and regulation of mortgage servicers to improve mortgage service standards in the state.
The bill the Legislature has enacted provides basic, reasonable and essential consumer protections toprevent lenders and brokers from taking advantage of borrowers eager to realize the American dream ofhomeownership, and existing homeowners who simply want to undertake repairs and renovations.
This bill provides borrowers with greater protections when making the most significant purchase oftheir lives: their homes.
The New York Public Interest Research Group (NYPIRG supports this legislation as anessential tool in combating the foreclosure epidemic that is ravaging neighborhoods across the stateand forcing families out of their homes and into uncertain circumstances. We applaud the role thatthe Governor, legislative leaders and staff have played in making this legislation a reality and endorseits enactment.
In the late 1990s, consumer, housing, legal services, senior and civic groups started soundingwarnings about a crisis in our communities, of predatory lenders taking advantage of credulous andvulnerable homeowners. While some of the financial predators were shady fly-by-night brokers,some of the best-known names in the financial services industry had a role in this first wave ofpredatory lending.
What was clear was that federal and state regulators were either ignorant of the realities of themarketplace or willing to overlook the frenzy of predatory practices that were already taking its toll.Federal and state regulators reacted slowly, insufficiently and in many cases not at all. .In 2002, aftera two-year campaign led by groups, including NYPIRG, under the banner New Yorkers forResponsible Lending (NYRL), the state enacted an anti predatory lending law, Banking Law Article6-1. While the law was a good start, it could not reach to businesses regulated outside of New Yorkand it could not keep pace with the new, complex mortgage products, including those with adjustablerates. As the economy continued to worsen and these new mortgages increasingly hit their "reset"dates, homeowners began to find themselves in distress and pressured by all sides.
Ironically many of these homeowners helped keep the economy alive after the 9-11 attacks bytapping the mushrooming equity in their homes to make improvements, payoff credit card debt, paymedical bills and purchase automobiles. Now the house of cards that enriched lenders and WallStreet has all come crashing down on them.
107 WASHINGTON AVENUE, 2 ND FLOOR· ALBANY, NEW YORK 12210-2270 • 518-436-0876 • FAX 518-432-6178 OFFICES IN: ALBANY, BINGHAMTON, CORTLAND, LONG ISLAND, NEW PALTZ, NEW YORK CITY, OSWEGO, PURCHASE & SYRACUSE RECYCLED PAPER Recent data show that more than 3,500 homes went into default in May. 1 More than 800auction notices were sent in the same month? Hardest hit areas are on Long Island, New York City,Albany and Monroe Counties. But no area is immune, as even Long Island's wealthy East End isseeing $20 million homes being foreclosed. 3
This legislation should make a huge difference in the lives of those New Yorkers who havemanaged to hang on. The legislation would amend the Real Property Actions and Proceedings Law,the Banking Law, Civil Practice Law and Rules, General Obligations and Real Property Laws toprovide procedural and substantive rights to homeowners of 1-4 unit residential dwellings to stave offforeclosure. The legislation would be require lenders to provide 90 days' notice prior to initiatingforeclosure and include a list of approved, certified independent mortgage counselors. Thisrequirement will ensure that the foreclosure counseling funds made available through the budget arewell spent. When a homeowner does end up in a foreclosure proceeding, they will have anopportunity to get counseling and legal services assistance to reform their loan and a mandatoryconference will be scheduled to determine if a workout can be arranged.
A number of the most egregious practices would be outlawed for subprime loans, parallelingthe protections afforded for high cost loans. Included among the banned mortgage provisions arenegative amortization (loans that add to the principal going forward); financing of insurance andother products or services through the mortgage; prepayment penalties; and yield-spread premiums(excessive broker compensation based on selling a higher interest loan). Covered loans, made on July1,2010 and beyond, would be required to escrow taxes and insurance in most instances.
For the first time, lenders and mortgage brokers in New York would be required to arrangesubprime loans only when they "reasonably and in good faith" believe at the time of the loan that theborrower has the ability to repay the loan based on objective circumstances. This will do away withsome of the most blatant and fraudulent types of loan practices wherein lenders and brokers setborrowers up for foreclosure before the ink had dried on the mortgage.
Mortgage service companies would be regulated and registered for the first time and subjectto fines to be prescribed by the Banking Board.
Finally, the Penal Law would be amended to include several new felony-level crimes forresidential mortgage fraud.
While we believe this legislation would have been significantly stronger if it included aprivate right of action and more tools for homeowners to proactively and preemptively freethemselves from predatory loans before they are on the brink of foreclosure. However, thislegislation in conjunction with the availability of funding for legal services providers and housingcounselors represents a strong lifeline to those homeowners in distress or teetering on default and thecommunities in which they live.
2 ooa045~~ NYPIRG enthusiastically supports this legislation and commends the Governor for his workin making this legislation a reality.
3 oonotoNEDAP Neighborhood Economic Development Advocacy Project
• 73 Spring Street, Suite 506, New York, NY 10012 Tel: (212) 680-5100 Fax: (212) 680-5104 www.nedap.org
NEDAP strongly supports the above-referenced bill and recommends that Governor Paterson sign the bill into law.
New York State is in the middle of an unprecedented foreclosure crisis spurred in large part from abusive practices in the subprime lending industry. This crisis is having a devastating effect on lower and middle income homeowriers, and on the economy of the state as a whole. According to a. report released by the Pew Charitable Trusts, one out of every 32 New York State homeowners is projected to face foreclosure in the next two years. In addition to the grave threat that the explosion in subprime foreclosures poses to homeowners and communities in New York, the combined state and local tax base could lose $65 billion.
S8143~A will help to reduce foreclosures by prohibiting abusive practices in the subprime market·going forward, and by changing the foreclosure process to increase opportunities for the resolution of eases.
A. The Governor's proposed bill contains two key new procedural approaches which could help to significantly reduce foreclosures in New York State.
. We strongly support the provision amending the CPLR to require mandatory settlement conferences in foreclosure actions. .
For many years, the New York State courts have been a virtual foreclosure mill, with lenders putting in pro forma papers and proceeding to foreclosure unopposed. Under the current system, the vast majority of homeowners in foreclosure actions in New York State do not have any chance to go before a judge, or to be heard by the courts in any manner.
We believe, based on years of experience working in the courts and from discussions with the courts, that the number ofborrowers defaulting in foreclosure actions far exceeds 90%. Unlike the summons in a landlord-tenant action, which calls on the tenant to come to court on a date certain, a
U00041foreclosure summons does not cite a court date. Instead, it advises the borrower to answer. Mostborrowers, without the resources to hire counsel, have no idea how to answer in a Supreme Courtproceeding. Once they fail to answer, they have defaulted, and they are not served with anysubsequent court papers.
As a result, many of the foreclosure cases that could be sensibly resolved early instead proceedthrough the foreclosure process. As the cases proceed. fees accrue and they become more and moredifficult to resolve. The provision in the Governor's program bill mandating an early settlementconference would change the dynamic of the foreclosure process by helping push the resolution ofthose cases where settlement is in the best interests of both parties.
Court supervision would increase the likelihood that servicers would agree to affordable loanmodifications, where feasible. Generally, the securitization structure has given servicers adisincentive to work with borrowers and seek sustainable loan modifications. It costs servicersmoney to complete a loan modification (as cited in Inside B & C Lending), while servicers receivenumerous fees for foreclosures. Servicers therefore resist modifications and push foreclosures, eventhough in most instances modification would be in the best interests of investors.
Given the magnitude of the foreclosure problem in New York State, the industry cannot crediblyclaim that it is a bad idea to bring the parties before the court in an attempt to mediate a rationalresolution. This is a common sense provision that will help prevent foreclosures.
The provision that would require lenders to send a notice to borrowers 90 days before filing aforeclosure action also makes clear sense as a matter of public policy. It would direct borrowers to anon-profit loan counselor early on in the process, and would give the parties a formal 90-daywindow to work on a resolution prior to the filing of a foreclosure action. Currently, the only noticesent out that advises borrowers about non-profit assistance is served at the time a foreclosure action .is filed~ By this time, attorneys fees have accrued, and it is more difficult for the borrower to enterinto a loan modification with the servicer. The 90-day pre-foreclosure notice will help ensure thatmore borrowers receive non-profit assistance in negotiating with servicers prior to the initiation of aforeclosure action. This will help to prevent foreclosures, and will reduce the number of foreclosureactions that are filed, preserving court resources.
B. The Governor's proposed bill contains vital provisions that would curb abusive lending practices in the subprime market. However, certain provisions of the bill should be strengthened inthe future to better protect New York homeowners and prevent abuses.
It has become quite obvious throughout the country that the subprime market cannot police itself,and that strong protections are needed to curb abusive lending practices. A number of states haverecently passed comprehensive responsible lending laws. The laws in Colorado, Illinois, Minnesota,Maryland, and Ohio apply most of their protections to all home loans. The laws in North Carolina,Connecticut, and Maine apply a threshold for coverage ofsubprime loans that is similar to thethreshold in S8143;.A. In addition, the Federal Reserve Board recently approved regulations thatcontain a threshold for coverage that is even broader than the threshold in S8143-A.
We support the defined threshold for coverage in S8143-A of 175 basis points over the prime rate.This threshold will help prevent abusive lending practices in much of the subprime market. 88143-
000048A falls short, however, by failing to include the definition of "non-traditional" mortgages in thethreshold language. Non-traditional mortgages, such as Payment Option ARMs and Interest-OnlyMortgages include some of the biggest payment shocks in the market. These products are highlyconfusing to borrowers, and have been widely misused by unscrupulous lenders and brokers tomislead lower income borrowers into loans that they can ill afford.
Many Payment Option ARMs would not fall under the existing threshold in S8143-A, because theinitial teaser rates are so low. It is critical that non-traditional loans be covered because there is somuch abuse in that market, and because the non-traditional market is enonnous--- for example,beginning later this year, the dollar value of re-sets for Payment Option ARMs will dwarf the valueof re-sets for subprime ARMs. In New York State alone in 2007, there were well over $2 billion inoriginations of non~traditionalloans. Leaving out coverage of non-traditional loans creates a gap inthe law.
Weare also concerned that Home Equity Lines of Credit ("HELOCs") are specifically exemptedfrom all of the borrower protections involving subprime loans; As a result, unscrupulous lenders canstructure higher cost refinance loans as HELOCs, and circumvent the protections of the law. Manylenders have been disguising "piggyback" second mortgages as HELOCs to avoid existing lendinglaws, and these piggyback loans would not be covered under S8143-A. Several states such as NorthCarolina have included language in their laws which exempt legitimate HELOCs from coverage, butensure that de facto mortgages disguised as HELOCs are covered by the law. We highlyrecommend that the Governor and the legislature consider such an approach in the future.
S8143-A contains strong limitations and prohibitions, including the provisions requiring all lendersto make affordable loans; and the prohibitions for subprime loans against loan flipping andprepayment penalties.
We are concerned, however, that the prohibition against "abusive" yield spread premiums-(YSPs)does not go far enough in preventing one of the most abusive practices in-the subprime market. Thelanguage iIi S8143-A merely provides for disclosures, which we believe win not address thefundamental problem with YSPs: that they provide a financial incentive to brokers to steerborrowers into unaffordable loans. The original version of Governor Paterson's program bill bannedall YSPs for covered loans, which we strongly believe is the correct approach.
S8l43-A conspicuously lacks any kind of prohibition against steering, or inducing a borrower into ahigher cost loan than she otherwise would qualify for. Steering has been particularly perniciouswhere borrowers are steered to higher cost loans due to their race. Numerous studies, including aprominent one by Freddie Mac, have showed that a significant percentage of subprime borrowersshould have qualified for lower cost, prime loans. A study by Senator Schumer found a significantcorrelation between steering and race. The Governor and legislature should consider addressing thisissue in any future lending legislation.
S8143-A contains a much-needed provision requiring brokers to act in a borrower's interest, and toact in good faith and with fair dealing. The provision should also require brokers to make a"reasonable inquiry" into a borrower's financial circumstances, so a broker cannot make an end runaround his responsibilities by willfully closing his eyes to a borrower's existing circumstances.
The provisions inS8l43-A prohibiting lenders and brokers from influencing or attempting toinfluence the result of an appraisal will help to reduce appraisal fraud, which has been central to
otl0049property flipping schemes downstate and abusive refmancing schemes upstate--- and which has ledmany homeowners to owe far more on their mortgage than their property is actually worth.
S8143-A does not provide for statutory damages for violations pertaining to subprime home loans.This is a deftnite shortcoming ofthe proposed law, as actual damages can be difftcult to prove, andstatutory damages are critical in providing a deterrent against bad practices. We stronglyrecommend that the Governor and legislature consider adding statutory damages for violations of theact in the future.
S8143-A strikes a fair balance on assignee liability by giving homeowners recourse against thecurrent holder of their loan when they are in foreclosure. Without this assignee liability provision,homeowners would be deprived of their right to defend against foreclosure. The securitizationprocess has helped strip borrowers of the ability to raise defenses in foreclosure when there wereillegalities in the origination. When borrowers raise defenses, the trusts typically claim that theyhave no responsibility for any abuses at origination-and borrowers are left defenseless. Thehomeowner's only legal recourse is against the originator of the loan, which has no ability to stop theforeclosure. Many of the originators have gone bankrupt.
Furthermore, weak assignee liability would reinforce a lack of accountability by the secondarymarket. This lack of accountability has allowed Wall Street investment banks to purchaseunsustainable and irresponsible loans without any concern for their viability or legality. This lack ofaccountability has created huge proftts for Wall Street at the expense of homeowners, and ultimately,investors. We strongly support the balanced approach to assignee liability taken in S8143-A.
Servicer Licensing
The servicing industry has been largely unregulated on the state or federa1level, and, as a result,many servicers have widely gouged borrowers, and have contributed to the rash of foreclosuresthrough aggressive collection tactics. The provisions ofS8143-A which would require servicers tobe licensed with the Banking Department is a good ftrst step toward reining in abusive servicers.We would recommend that in the future, the Governor and legislature consider adding a specifIcrequirement that the Banking Superintendent promulgate regulations related to unfair and deceptiveservicing practices.
In general, S8143-A will provide an excellent framework for responsible lending going forward, andhelp ensure that New York homeowners get a fair shake in the foreclosure process. We urgeGovernor Paterson to protect New York homeowners and communities by signing this legislationinto law.
LI ~' Sarah Ludwig ~ Co-Director
000050 NEW YORKERS FOR RESPONSIBLE LENDINGJuly 29,2008
NYRL strongly supports the above-referenced bill and recommends that GovernorPaterson sign the bill into law.
New Yorkers for Responsible Lending (NYRL) is a statewide coalition of 141 non-profitorganizations that work to promote fair and affordable financial services for all New Yorkers.Our groups have seen firsthand the devastating impact that the current explosion inforeclosures has had on individuals and communities throughout the state.
S8143-A will help to reduce foreclosures by prohibiting abusive practices in the subprimemarket going forward, and by changing the foreclosure process to increase opportunities forthe resolution of cases.
Procedural provisions
We strongly support the provision amending the CPLR to require mandatory settlementconferences in foreclosure actions. This provision will change the dynamic of the foreclosureprocess by helping push the resolution of those cases where settlement is in the best interestsof both parties. Given the magnitude of the foreclosure problem in New York State, theindustry cannot credibly claim that it is a bad idea to bring the parties before the court in anattempt to mediate a rational resolution. This is a common sense provision that will helpprevent foreclosures.
The provision that will require lenders to send a notice to borrowers 90 days before filing aforeclosure action also makes Clear sense as a matter of public policy. It would directborrowers to a non-profit loan counselor early on in the process, and would give the parties aformal 90-day window to work on a resolution prior to the filing of a foreclosure action.Currently, the only notice sent out that advises borrowers about non-profit assistance is servedat the time a foreclosure action is filed. By this time, attorneys fees have accrued, and it ismore difficult for the borrower to enter into a loan modification with the servicer. The 90-daypre-foreclosure notice will help ensure that more borrowers receive non-profit assistance innegotiating with servicers prior to the initiation of a foreclosure action. This will help toprevent foreclosures, and will reduce the number of foreclosure actions that are filed,preserving court resources.
000051Prohibitions on Abusive Practices
We strongly support the defined threshold for coverage in S8143-A of 175 basis points overthe prime rate. This threshold will help prevent abusive lending practices in much ofthesubprime market. The threshold could be strengthened, however, by including "non-traditional" mortgages. Non-traditional mortgages, such as Payment Option ARMs andInterest-Only Mortgages include some of the biggest payment shocks in the market. Theseproducts are highly confusing to borrowers, and have been widely misused by unscrupulouslenders and brokers to mislead lower income borrowers into loans that they can ill afford.
Many Payment Option ARMs would not fall under the existing threshold in S8143-A,because the initial teaser rates are so low. It is critical that non-traditional loans be coveredbecause there is so much abuse in that market, and because the non-traditional market isenormous--- for example, beginning later this year, the dollar value of re-sets for PaymentOption ARMs will dwarf the value ofre-sets for subprime ARMs. In New York State alone in2007, there were well over $2 billion in originations of non-traditional loans. The omission ofnon-traditional loans in the threshold creates a potential gap in the law.
We are also concerned that Home Equity Lines of Credit ("HELOCs") are specificallyexempted from all of the borrower protections involving subprime loans. As a result,unscrupulous lenders can structure higher cost refinance loans as HELOCs, and circumventthe protections of the law. Many lenders have been disguising "piggyback" second mortgagesas HELOCs to avoid existing lending laws, and these piggyback loans would not be coveredunder S8143-A. Several states such as North Carolina have included language in their lawswhich exempt legitimate HELOCs from coverage, but ensure that de facto mortgagesdisguised as HELOCs are covered by the law. We highly recommend that the Governor andthe legislature consider such an approach in the future.
S8143-A contains strong limitations and prohibitions, including the provisions requiring alllenders to make affordable loans; and the prohibitions for subprime loans against loan flippingand prepayment penalties.
We are concerned, however, that the provision on yield spread premiums (YSPs) does not gofar enough in preventing one of the most abusive practices in the subprime market. Thelanguage in S8143-A, which essentially provides for disclosures, will not address thefundamental problem with YSPs: that they provide a financial incentive to brokers to steerborrowers into unaffordable loans. The original version of Governor Paterson's program billbanned all YSPs for covered loans, which we strongly believe is the correct approach.
S8143-A also lacks a prohibition against lender steering, or inducing a borrower into a highercost loan than she otherwise would qualify for. Steering has been particularly perniciouswhere borrowers are steered to higher cost loans due to their race. Numerous studies,including a prominent one by Freddie Mac, have showed that a significant percentage ofsubprime borrowers should have qualified for lower cost, prime loans. A study by SenatorSchumer found a significant correlation between steering and race. The Governor andlegislature should consider addressing this issue in any future lending legislation.
000052S8143-A contains a much-needed provision requiring brokers to act in a borrower's interest,and to act in good faith and with fair dealing, which we strongly support.
S8143-A does not provide for statutory damages for violations pertaining to subprime homeloans. This is a definite shortcoming of the proposed law, as actual damages can be difficult toprove, and statutory damages are critical in providing a deterrent against bad practices. Westrongly recommend that the Governor and legislature consider adding statutory damages forviolations of the act in the future.
S8143-A strikes a fair balance on assignee liability by giving homeowners recourse againstthe current holder of their loan when they are in foreclosure. Without this assignee liabilityprovision, homeowners would be deprived of their right to defend against foreclosure. Thesecuritization process has helped strip borrowers of the ability to raise defenses in foreclosurewhen there were illegalities in the origination. When borrowers raise defenses, the truststypically claim that they have no responsibility for any abuses at origination-and borrowersare left defenseless. The homeowner's only legal recourse is against the originator ofthe loan,which has no ability to stop the foreclosure. In fact, many of the originators have gonebankrupt. The balanced approach borrowers will have the ability to defend themselves whenthey have been targeted for abusive and illegal lending practices.
S8143-A will prevent subprime lending abuses going forward, and will help ensure that NewYork homeowners get a fair shake in the foreclosure process. We urge Governor Paterson tosign this legislation into law.
New Yorkers for Responsible Lending (NYRL) is a state-wide coalition established in 2000 to promote access to fair andaffordable financial services and the preservation of assets for all New Yorkers and their communities. NYRL is committedto fighting predatory practices in the financial services industry through policy reform, education and outreach, research and direct services. NYRL's 141 members represent community financial institutions, community-based organizations, affordable housing and first-time homebuyer groups, advocates for seniors, legal services organizations, and community reinvestment, fair lending, and consumer advocacy groups.
OOtJ053 ,.-1"04'.. -- ... ~ r '.~
I write to applaud your recent introduction of Program Bill No. 44 (A.I0817/S.8143) addressing the escalating .I?0rtgage fo.reclosure crisis in New York State. 10:... .••
Your efforts ~~. parti'ctlarly timely as our. City grappl~s \Vi~'1l tt~ubling spike in property foreclosures imO a' corresponding risk of fraudulent title transfers: .' Indeed, my. office;s Mortgage Foreclosure Prevention Helpline continues to respond to an unprecedented number of inquiries and I therefore urge you to consider expanding the scope of your bill to address several issues.
First, a cornmon practice has developed in the mortgage industry whereby homebuyers are routinely encouraged to use an attorney recommended by the lender. Aside from raising potential conflict-of-interest issues for the attorney, this practice undercuts a valuable safeguard for home buyers. Specifically, buyers forgo the advice and expertise of an attorney who is committed soleiy to representtng'theirinterests and the''''possible detection -of· attempted fraud· before any damage is done. To correct this state of affairs, my office recommends the following measure:
• Create an affirmative duty for state-licensed participants in a real estate transaction (e.g., real estate agents, mortgage brokers, lenders, appraisers, attorneys, etc.) to report suspected fraud. This duty would be similar to federal mandates requiring banks to report.certain suspicious activity trans~ctions.
-Se~ond, my staff has be~n ad~ised that, when a conveyance of real property occurs without the issuance of a title msurance policy, an elevated risk of fraud 'is present. I therefore propose amending existing law to require any PartY ,ob~ining an ownership interest in real property to:
000054·.........." ~. ".,- ,- .. - .. ------ .......... .. ~ .. , - --
1. Provide proof to the county clerk or city register that title insurance has been obtained for the subject property, or
2. File a notarized statement with the clerk or register identifying the reason(s) for not obtaining title insurance. For cases in which title insurance was not obtained, the clerk or register should be required to contact the last owner of record to confirm the reported conveyance and minimize the possibility of fraud.
Finally, while not directly related to foreclosures, we have identified certain fraudulent activities in the mortgage process that should be addressed in the fmal bill. ~~~ ;~. ;....:..~. 'iJ!! 1'" .......... ~- ,r .~;---: ;~::.. __ ~ _-..' --:;;. ...-o:-~.'~~. ~C!" ~.- ~ ~- :::P~ ~ ;; -::'~~: _. ~'--~~
. Currently, anyone can obtain' a copy of a homeowner's signature. This is because county clerks and city registers are required to enter into the public record most real estate deeds and mortgage documents. Within New York City, these docUments are electronically imaged and made publicly available online through the Automated City Register Information System. These scanned records include crystal clear images of homeowners' original pen-and-ink . signatures, which could make it easier for identity thieves to forge or misappropriate homeowners' signatures. At present, the ElectronicSignatures and Records Act does not allow the use of a more secure "electronic" signature on real estate transactions, including real property conveyances. Therefore, I believe the Electronic Signatures and Records Act should be amended to allow, within a properly controlled environment, the submission of real estate conveyances and related documents with electronic, rather than pen-and-ink, signatures.
On behalf of all City residents, please accept my gratitude for your efforts in this area. My staff and I remain available to assist you regarding this important issue.
000055 AARP New York T 1-866-227-7442 One Commerce Plaza F 518-434-6949 Suite 706 www.aarp.org/ny Albany, NY 12260
AARP strongly supports the above bill and recommends that Governor Paterson sign the bill intolaw.
According to Governor Paterson, there were more than 52,000 foreclosures filed in New York State in2007, amounting to approximately 1,000 foreclosures filed per week. In just the first quarter of2008,that number jumped to approximately 1,100 foreclosures per week.
When a person of any age loses his or her home, it is a devastating event. For an older person, aforeclosure can mean losing a retirement nest egg as well as a lifetime of family memories without theability to ever recover. Over 80 percent of people age 65 and older are homeowners. Borrowers age 65+were found to be three times more likely to hold a subprime mortgage than borrowers less than 35 yearsof age. As widely reported, the foreclosures crisis has hit the subprime market place the hardest.
The above referenced legislation, introduced by the Governor and negotiated with the Legislature, offerssound policy to address New York State's foreclosure crisis. The bill will not dry up credit for thoseseeking loans and builds upon New York's anti-predatory lending statue that was passed in 2002.
Governor Paterson's legislation approaches the foreclosure crisis in two fundamental ways: by providingassistance to homeowners currently at risk of losing their home and including provisions to keep thiscrisis from happening again.
The legislation accomplishes these goals by requiring lenders to send pre-foreclosure notices toborrowers at least 90 days before foreclosure proceedings begin, requiring mandatory settlementconferences for foreclosure proceedings, and providing foreclosure rescue scam consumer protections.Mortgage servicers would be required to be registered. Mortgage brokers would be required to act in aborrower's interest. Lenders would be required to verify a borrower's ability to repay a loan. Thelegislation also makes mortgage fraud a crime
AARP urges Governor Paterson to protect New Yorkers from losing their homes to foreclosure now andin the future by signing this legislation into law.
~Ib>~Lois AronsteinState Director, AARP New York Erik D. Olsen, President William D. Novelli, Chief Executive Officer
Telephone: 212815-1000
LILLIAN ROBERTS Executive Director July 22, 2008VERONICA MONTGOMERy.cOSiA PresidentCLIFFORD KOPPELMAN Secretary Honorable David PatersonMAf MISBAH UODINTreasurer GovemorofNew York Executive Chamber State CapitolVICe Presidents: Albany, NY 12224 Lwmlrd Allen Colleen Carew-Rogers Carmen Charles RE: Mortgage Foreclosures Santos Crespo S.8143/Farley - A.I0817ffowns Sirra Crippen Michael L. DeMarco Cuthbert B. Dickenson Alfred Edwards Charles Fanison Dear Governor Paterson: Claude Fort Michael Hood District Council 37, AFSCME, AFt-CIO, r~presenting 125,000 memhers Morris R. Johnson David F. Moog supports this legislation. Faye Moore Eileen M. Muller This bill seeks to address the mortgage foreclosure crisis in the state by; Walthene Primus Darryl A. Ramsey (1) providing additional protections and foreclosure prevention opportunities for Eddie Rodrigue:c:: homeowners at risk of losing their homes; (2) strengthening the Banking Law to Jackie Rowe--Adams Cleveland G. Terry prevent similar crises from occurring in thc future; (3) establishing standards for John Townsend lenders and mortgage brokers to prevent borrowers from being placed into James J. TUcciarelii unaffordable home loans; (4) registering and tebrulating mortgage IOaJ:1 servicers to Esther (Sandy) Tucker Shirley A. Williams enhance loan servicing standards in the statl;:; and (5) defining the crime of residential mortgage fraud and establishing strict criminal penalties to deter thoseAssociate Director who may engage iI'I such activity. Oliver Gray On behalf of District Council 37. I respeclfully ~lrge you to approve this vital piece of legislation which would protect homeowners from abtlSivc andRetirees Associa6on deceptive practices. Stuart Leibowitz Sincerely,
~'1d ' _\ . 7d-v--v.J:..1.1 LilIim1 Roberts Executive Director
TOTAL P.003WESTERN NEW YORK LAW CENTER, INC.237 Main Street, Suite 1130, Buffalo, New York 14203
Ms. ClemonsActing Counsel to the GovernorAlbany, New York
I had the honor to speak before the Senate in May in support of SenateBill S8143-A. I am particularly excited about the ninety day notice provisions forhomeowners prior to commencing foreclosures. Currently, homeowners, whilethey realize they are in default, simply do not know when the foreclosure willbegin. This allows the homeowner to start negotiating to try to resolve thedelinquency prior to the beginning of a foreclosure which can result in additionalattorney fees and litigation costs. The mandatory settlement conference can be apowerfUl forum to build on the earlier negotiations prior to foreclosure. It isimportant to get the home owner involved in the process in order to work out aresolution. Currently, most foreclosures result in default judgments.
e:'-l:e~ Staff Attorney
000058WHITEMAN Attorneys at LawOSTERMAN www.woh.comEJ HANNA LLP William Y. Crowell III PartnerOne Commerce plaza 518-487.7677 phoneAlbany. New York I2260 wcro Wf.l!J9..1YQ!J· cC!-TrJ5I8.487.7600 phone5I8.487.7777 fax
This letter is submitted on behalf of our client, the Independent Bankers Association of New York State,with respect to the subject bill which is currently awaiting executive action.
The community banks throughout New York State remain focused on the application of the thresholdsdefining what constitutes a subprime home loan. The thresholds in this legislation could result in theinclusion of prime mortgage loans within the parameters for subprime home loans. The net effect of thiswould be to limit the availability of mortgage funding in an already volatile market. Community banks inNew York State were not involved in the creation of the current subprime crisis. Community banks willnot make subprime mortgages as defined in this bill.
Under this bill, the Banking Superintendent has the authority to raise thresholds. Our client would urgethat the administration maintain maximum flexibility with respect to thresholds to ensure that mortgagefinancing remains available in New York State. The Superintendent needs to actively monitor thethreshold rates to insure no negative impacts. The Independent Bankers Association of New Yark Statewould welcome the opportunity to have input on this issue.
The Banking Superintendent is a critical safety valve to ensure operation of a viable mortgage market inNew York State. We appreciate this opportunity to highlight this critical issue based on the thresholdscontained in this legislation.
Respectfully submitted,
JJ<.}!...t~__ 7 0 ~~ -eWHITEMAN OSTERMAN & HANNA LLPLegislative Counsel to the Independent Bankers Association of New York StateW:\11900\11942\Leg MemosIS8143-A.docRETRIEVE Page 1 of38
IN SENATE May 2, 2008
AN ACT to amend the real property actions and proceedings law, the civil practice law and rules, the banking law and the general obligations law, in relation to home mortgage loans; to amend the penal law and the criminal procedure law, in relation to creating new crimes relat- ing to mortgage fraud; and to amend the real property law, in relation to distressed property consulting contracts
The People of the State of New Yor~L represented in Sepate and Assem- l::>J.YLclC>E3I1a.Ct as follows:
s. 8143--A 3
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1aclj.C.>'ll:rI'lE3cl cla.1:.E3 a.El ha.l:l.. PE3E3I'l a.g:rE3E3cl 1:.9.PY1:.1"lE3 Pa.:r1:.i.E3l:lL f9:r 1:.1"lE3 P'lll:'PC.>El.E3 of 2 holding settlement discussions pertaini-I'lSl- to the relative righ1:.~_ar!S:! 3 9PJ.i.ga.1:.ic'>I'lsC.>:f:1:.1"lE3pa.:r1:.:LE3l:l'llI'lclE3:r1::.1"lE3Il\C.>:r1:.ga.gE3].C.>a.I'lcl9C:'llInE3I'l1:.ElL:Lrlc:l'llclirlgl 4 b~1:.I'l<:>1::._J..i.lll:i. ted t9 dete:rrnl-rli.-.rlg'i1"let1"l§:r1:.1"lE3_pa.:r1:.i.E3.El. c:a.rl!-"E3ac1"lclIlrU1:.ually 5ag:rE3E3a.l:>1§!rE3ElC.>1'll1:.i.C.>rl1:.C.>11§!J.P1:.1"lE3clE3:f:E3rlcla.I'l1:.a.yC.>i.cl . . J.C.>l:li.rlg . . 11i.l:l . 9:r11E3:r...11ClInE3 , 6 an cl .E3ya.J.'lla.1:.i.rlg .1:.:h§!. pC.>1:.E3I'ltial . fC.>:ra. . . :rE3l:lC.>J.'ll ti9rli.rlW'11i.c::hpa.YJllE3rlt:l:lc:l:1E3cl'llles 7 or amounts may be modified or other workout options mEY PE3 a.g:r.§!.I;!cl 1:.C.>1 8 a.I'lcl:f:9:r'i:ha.1:.E3YE3:r . . C.>1:.l1E3:rPU:rP0l:lE3S1:.l1E3C:eJ'll:rt:cl§!eInl:l<iPP:rC.>p:ri.a.t§!. 9 (b) At the initial. c:onference held pursuant to th:L~ml:l§_c:t:L9rll <il!Y 10 <:I.§!:f:E3rlcl<irlt C::'ll:r:rE3I'l1:.].y <iPP§<irirlg p:r9l:lE3IEll1a.llpElclElElIl\E3cl tg :ha.V§.Il\a.clEl a. 11 In9t::LeJr1 to P:r9C::ElElcla.Ela.PC.>9:rP§rS9I"l"LlI'lcl§!:rS§!c::t:L9rlElJ.ElYE3Ill1'llIlcl:rE3cleJI'lEl of 12 th:i.$ chapter. The court shall_det:E3:rmine.whether such permission shal..J.QE3 13 g:r<iI"lt:El<:l.P'll!-"El"Lla.Ilt.t:9El1:.a.rld.a.:rd.l:lset::f:C.>:r1:.1"l.. iI"l §Elc::1:.ieJIlEllElYElrll1'llrl<:l.:rEld. one of 14 this chapter. If the court.. _ClPp_oiIl.ts defendant counsel pursuant to subdi- 15 vi.§:LeJIl(a.19:f:§§c:t:L9I'lEllE3YElI'l ... l:1"LlIld.:rE3d. t:W'9 of this c::l1a.pt.El:rJ it shall 16 a.d.j9'llrI'l the C:9Il:f:E3:r§nC:Elt.C.>a.<:I.a.t:ElC::El:rt:a.i.I"l:f:C.>:r a.PPE3<iranC:El.of c0'llnsEll and 17 settlement discus;.§:L9!lS. pursuant to subdivision (a). ()f tl:1:i,.s;$§c:t:LC.>rl_1 ap_d. 18 o1:.l1erW'i§E3l:l1"la.J-l P:r9C:E3E3<:1.W':L1:.1"l1::.1"lElC::9!l:f:E3:rElrlC::§!.· 19 (c) At any_ uc::Ql!ference held pursuant to this sec:ti.C.>rl/_. tl1§_P.1a.:i.rlti.:f.t" 20s1"l<ill<iPPEl<i:r:LI'l PEl:r~9I'l9!-"Py.c:.9'llI"ls;§!lJ <i!l<:l.:L:f:<ippe<i:riI'lgPYC:9"LlrlS§!J.l such 21 counsel Elha.J.lp§!:f:'llJ.J.Y<il11:.119:r:L:ZE3d.1:.9d.:LElP9l:l§!C.>:f:tl1§!c::a.se. The. <:I.§!fElndant 22 shall appear in person or bY_9c'>.1,!I'ls;el. If the defendant is appearing Pl:'9 2 3 $E3,t:11§!C::Q"Ll:rts;l1aJ-l<id.Y:L§El1:.1"lE3d.E3:f:E3rld.a.Ilt:C.>:f:t:11§!rl<it.u:r§!C.>:f:1:.1"lEla.c:1:.:L9rl<iIld. 24 his or her rights and responsibilities ..a.§.._.<i. defendant. Where appropri- 25 atEl.L1:.he court may permit a representative of t1"lE3.plaintiff to attend 2 6tl1El §Elt.1:.1ElIn§!Ilt:C:9Il:f§!:r§!rlC::§! t:§!1§!P119rl:LC:<iJ.J.Y O.:r PY yid.El9:-.C::ClIl:f:§!:rE3IlC::E3.· 27 § 3-a. For any foreclosure action on a residential mortgage loan l in 28 which the action was initiated prior to September 1 1 2008 but where the 29 final order of judgment has not yet been issued, the court shall request 30 each plaintiff to identify whether the loan in foreclosure is a subprime 31 home loan as defined in section 1304 of the real property actions and 32 proceedings law or is a high-cost home loan as defined in section 6-1 of 33 the banking law. 34 If the loan is a subprime home loan or high-cost home loan, the court 35 shall notify the defendant that if he or she is a resident of such prop- 36 erty, he or she may request a settlement conference. 37 If the defendant requests a conference, the court shall hold such 38 conference as soon as practicable for the purpose of holding settlement 39 discussions pertaining to the rights and obligations of the parties 40 under the mortgage loan documents, including but not limited to, deter- 41 mining whether the parties can reach a mutually agreeable resolution to 42 help the defendant avoid losing his or her home, and evaluating the 43 potential for a resolution in which payment schedules or amounts may be 44 modified or other workout options may be agreed to, and for whatever 45 other purposes the court deems appropriate. 46 At any conference held pursuant to this section, the plaintiff shall 47 appear in person or by counsel, and if appearing by counsel, such coun- 48 sel shall be fully authorized to dispose of the case. The defendant 49 shall appear in person or by counsel. If the defendant is appearing pro 50 se, the court shall advise the defendant of the nature of the action and 51 his or her rights and responsibilities as a defendant. Where appropri- 52 ate, the court may permit a representative of the plaintiff to attend 53 the settlement conference telephonically or by video-conference. 54 § 4. Paragraphs (c), (h) and (j) of subdivision 2 of section 6-1 of 55 the banking law, as added by chapter 626 of the laws of 2002, are
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1 amended and five new paragraphs (r), (s), (t), (u) and (v) are added to 2 read as follows: 3 (c) No negative amortization. No high-cost home loan may contain a 4 payment schedule with regular periodic payments that cause the principal 5 balance to increase. 1\1,9C3.IliS:C::9IlSicl§!.I:'Elclto have :sucll a sClledule i f 61:llepC>.I:'.I:'C>W§!.I:'i-139,iYElIltllEl c>p1:,iC>Il.t:9 lllGi]CEl .I:'§!gllJ..C3.J:,"PEl:r:,ic>cli c:: PGiyI!lElIlt:131:l:lCi1: 7 cause the--Brincipalj:)alanc~t~increaseLeven i f the---.por--.I:'0wer . is_also 8g,iy§!n1:1l§!9Pt:,i9Il1:C>l1lCi]{.§!:r: e 9 ul Gi.I:'.pe :r:,i9<:l,iCPCi.Yl1l§!Il1:131:11C3.1:.cl9Ilc>1:CCill$§!1:ll§l 9 princ:i..pal_ balanc~_to~ncrei!~,----'J'hi~_p-CiJ::~rapl:L shall---.!1o tp]Cohibi t nega- 10 1:,iY§!Ci.11l9:r:1:,i?=C3.1::L9IlCi.S:C3..I:'El1311l 1:9:f"a. t,ElIllP9.I:'Ci..I:'Y forbearanceS:C>llgl11:PYGi 11 pc>rroweJ:,". 12 (h) No financing of insurance or~tl1Elr products sold in connection 13w,it,h t,he19an. No high-cost home loan shall finance, directly or indi- 14 rectly, any credit life, credit disability, credit unemployment, or 15 credit property insurance, or any other life or health insurance premi- 16 ums, or any payments directly or indirectly for any debt cancellation or 17 suspension agreement or contract, [except that insurance] gI:"-anY-Broduc1: 18 or [3 Elry,iCElt,l:lCi.t:,i13 Il9t:IlElceSsa l:'Y9:r: .I:'§!1C3.t§lcltc>t:11§l11,i911=C913t:1l9Ill§!19a.Il 19 such as auto--.<=:lub -1!lembershi..plL_or_ credi"L_.I:'.§port_moni torin~,_---.put--.Ilot 20i.IlCl,llcl,iIl9 fees PC3. i cl to the J.ElIlcl§!.I:', P.I:'9]{.§!.I:', 9.I:'CJ..9$,iIl9Gig§!Ilt:,:f"§!§l13 21.I:'§!J..Ci1:§!cl1:c>t,11§!.I:'§!C9.I:'ci,ing9:f" them9rtgC3.g§!, titleinsllraIlC§! or other 22 settlement fees. InsurancE! premiums or debt cancellation or suspension 23 fees calculated and paid on a monthly basis shall not be considered 24 financed. 25 (j) No refinancing of special mortgages. No lender or mortgage broker 26 making 9:r::: Ci.I:'.I:'~Il9,il1g a high-cost home loan may refinance an existing home 27 loan that is a special mortgage originated, subsidized or guaranteed by 28 or through a state, tribal or local government, or nonprofit organiza- 29 tion, which either bears a below-market interest rate at the time of 30 origination, or has nonstandard payment terms beneficial to the borrow- 31 er, such as payments that vary with income, are limited to a percentage 32 of income, or where no payments are required under specified conditions, 33 and where, as a result of the refinancing, the borrower will lose one or 34 more of the benefits of the special mortgage, unless the lender is 35 provided prior to loan closing documentation by a HUD [certified] 36 CiPP.I:'9Y§!cl housing counselor or the lender who originally made the special 37 mortgage that a borrower has received home loan counseling in which the 38 advantages and disadvantages of the refinancing has been received. 39 ftl N9.- prepayI!lent_-Benal t.i.§!~_,__~--prepGl.yIIlen t:_ penal tie:Lor_fees:---phall_bE! 40 charge,e:Lor collected_on~-.-l:ligh -CC>s t_home-.J,oCiIl-,-- A-preRaJ'I!len t~nalty~_Il~ 41 l:l.i.911=C9:st,1l9Ill§!19C3.Il:sl1GilJ.b§!uIlElnfor:c::§!Gl.l::>J.§!. 42 J~_..E<=>----.?busi ve_v-eld_:Spl:,"gad_p.I:'emi um~JIl...Gl.rra~ing ~ .-high -cos t hom§! 43 J..C>C3.Il,t:1l§!IllC>.I:'tgCi.9§!P.I:'9]{.§!:r:$hC3.l1,Git:t,11E§!t:.i.IllEl ofC3.ppl,iCCiti9IlJcli.$clgse 44 the_ exacL~ouni~Il<:Lmej::l1c:>dology_of_ total_c::om-pensa tion...t:hat --.t:he brok§!.I:' 45 wi1:L...!"ecei V§!... ~uch~Ill.ouIl...t_Ill...Gl.Y l::>§LP~icLas_di:r;§!ct__ ...99Illperll3..a tioIl_froIIL _t.1lEl 46 1 §!l1cl§!r:, dire c t C9IllP§!Il:SGit:,iC>Ilfr:OIllt,11§!P9.I:'.I:'9W§!.I:',C>.I:'C3.C::9Illl::>,iIla.1:i.C>IlOftl1§! 47 i:,wo-,-..1'he---p.:r:::ovisj,onlL of_t:.1li...§_p~.I:'.<3.g.I:'~h .-:shalLnoj:._:r:::estrict_ thE:!.... abj,li tY-_c>:f" 48 a borrower t911t,,iliz§!a.yi,eld s:preacl prElm:LllIlliIl9.I:'clert,90f:f"s§!t,anyup 49 front... cos t.:s..12Y.- acc§.'lting_ a.... l1igh§.I:'.i.I"!tergs t.xC!..t~"-_ILthe bor.I:'.ow§!r_c::l:loo:s~ 50 1:...h.i.~_ 9P1:.i9n-,~I'ly_col1lP~n...§ati.()Il :f"r2111 t,h...§_lE§!}lcl§.r_whicl1....§!x<::§ed.E __ 1:.h.§!_§x..<3.c.t 51 amount 9ft9ta.lCOIllP§lIl:sa.t:iqn qWEld 1:0 t,l1ElP:r:0lcerIllllstPElCr:§!cli1:§!cito the 52 bqrJ:,"<:>wElJ:," 'J'hesllP_eJ:,"iIlteIldEll1t sl1al],pr§S:C::J:ipe_ t:..hS!f()~lll j:::l1Gi1:,$l!.Cl1 cii$c10- 53 $llr§!:shallt:Cilce.'J'hispJ:ovisiol1shallIl0t,r§!s1:ri.ctC3.l:>.I:'9lc§!.I:':f"r:oIllac::cept- 54 :in.9-C!..lesseI:"-amQunt:. 55 j1J_ Manda torr _es crQw_ mc:>K. j:::axEll:l_anci.i.n...§ur.<3.p.c§.._No ..lJ.igh - cgs t.-h9me_loCi...n 56 $l1Gillb§ IllGicieCift:§!J:'J111yfirst, two thousand ten unless the l§!Ilci§!r
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29 If you obtain this loan, which pursuant to New York State Law is a 30 High-Cost Home Loan, the lender will have a mortgage on your home. You 31 could lose your home, and any money you have put into it, if you do not 32 meet your obligations under the loan. 33 You should shop around and compare loan rates and fees. Mortgage loan 34 rates and closing costs and fees vary based on many factors, including 35 your particular credit and financial circumstances, your earnings histo- 36 ry, the loan-to-value requested, and the type of property that will 37 secure your loan. The loan rate and fees could vary based on which lend- 38 er or mortgage broker you select. Higher rates and fees may be related 39 to the individual circumstances of a particular consumer's application. 40 You should consider consulting a qualified independent credit counse- 41 lor or other experienced financial adviser regarding the rate, fees, and 42 provisions of this mortgage loan before you proceed. The enclosed list 43 of counselors is provided by the New York State Banking Department. 44 You are not required to complete any loan agreement merely because you 45 have received these disclosures or have signed a loan application. If 46 you proceed with this mortgage loan, you should also remember that you 47 may face serious financial risks if you use this loan to payoff credit 48 card debts and other debts in connection with this transaction and then 49 sUbsequently incur significant new credit card charges or other debts. 50 If you continue to accumulate debt after this loan is closed and then 51 experience financial difficulties, you could lose your home and any 52 equity you have in it if you do not meet your mortgage loan obligations.
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s. 8143--A 13
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1 ment, the licensee, servicer or registrant shall become liable for and 2 shall pay such assessment to the superintendent. 3 In any hearing in which the bank examiner acting under authority of 4 this chapter is available for cross-examination, any official written 5 report, worksheet, other related papers, or duly certified copy thereof, 6 compiled, prepared, drafted, or otherwise made by said bank examiner, 7 after being duly authenticated by said examiner, may be admitted as 8 competent evidence upon the oath of said examiner that said worksheet, 9 investigative report, or other related documents were prepared as a 10 result of an examination of the books and records of a licenseeLl:3~.rYi.: 11 c:§.r or registrant or other person, conducted pursuant to the authority 12 of this chapter. 13 § 11. Section 597 of the banking law, as amended by chapter 571 of the 14 laws of 1986 and the opening paragraph as amended by chapter 499 of the 15 laws of 1995, is amended to read as ~ollows: 16 § 597. Books and records; reports. Each licensee,l:3~.rYi.c:~r, registrant 17 and exempt organization shall keep and use in its business such books, 18 accounts and records as will enable the superintendent to determine 19 whether such licensee, §~.rYic:er registrant or exempt organization is J..
20 complying with the provisions of this article and with the rules and 21 regulations lawfully made by the superintendent and the banking board. 22 Every licensee, servicer, registrant and exempt organization shall 23 preserve such books, accounts, and records, for at least three years; 24 provided, however, that preservation by photographic reproduction there- 25 of or records in photographic form, including an optical disk storage 26 system and the use of electronic data processing equipment that provides 27 comparable records to those otherwise required and which are available 28 for examination upon request shall constitute compliance with the 29 requirements of this section. 30 Each licensee and registrant shall annually, on or before a date to be 31 determined by the superintendent, file a report with the superintendent 32 giving such information as the superintendent may require concerning the 33 business and operations during the preceding calendar year of such 34 licensee or registrant under authority of this article. Such report 35 shall be subscribed and affirmed as true by the licensee or registrant 36 under the penalties of perjury and shall be in the form prescribed by 37 the superintendent. In addition to annual reports, the superintendent 38 may require such additional regular or special reports as he may deem 39 necessary to the proper supervision of licensees and [registrant] .r...§!g:i.EJ:- 40 t~~~t~ under this article. Such additional reports shall be in the form 41 prescribed by the superintendent and shall be subscribed and affirmed as 42 true under the penalties of perjury. 43'l'h~l:3l.lp~.ri.Ili:~Ilcl~Ilt:IIlCiY:r:~quir~l:3~:r:yic:~.rs to file annl.lCiJ. :r~p():r:ts or 44 9-t:ber__ requlCi.:r:_~C>.-~_-.13"'pec:i.Cl..:L_-..r~-p():ri:~_i-l'l-.c:J.1.lcl:LI"!SL~~-ports .wi th re~~c_"t...--.i:Q 45 IIlQ:r:i:9"~~~J.inqu~l'l-.c::i.~~_~ILcl-.f.Q~§c:.:L<:>-~1.l.r~EJ-,-_~1.lc:..h~~.p~.:r:.i:I:3-3l_h_all__ !2.~_~~ __tl'l.§! 46 form p:r:~s;q:ril::>ecl :by thesl.lp~J:'i.Ili:eIlcl~Ili: and shall be subscribed and 47 Cif%.irm~cl- EEJ_trl!-~J.1Llcl~:r:_th~ .P"'§!llCiJ.t::i._~_ .Q%_p§l:r:iu_:ry~ 48 § 12. Subdivision 1 of section 598 of the banking law, as amended by 49 section 57 of part 0 of chapter 59 of the laws of 2006, is amended to 50 read as follows; 51 1. In addition to such penalties as may otherwise be applicable by 52 law, the superintendent may, after notice and hearing as provided else- 53 where in this article, require any entity, licensee, serv,ic:erJ regis- 54 trant or exempt organization found violating the provisions of this 55 article or the rules or regulations promulgated hereunder to pay to the 56 people of this state an additional penalty for each violation of the
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S. 8l43--A 21
1 after notice and a hearing, require any safe deposit company, licensed 2 lender, licensed casher of checks, licensed sales finance company, 3 licensed insurance premium finance agency, licensed transmitter of 4 money, licensed mortgage banker, registered mortgage broker, authorized 5 mortgage loan originator, J:'§g,ist.ElJ:'ElciIll():ri::g<:igEl],()<:l.Il,s§J::'yiC::ElJ:' or licensed 6 budget planner to pay to the people of this state a penalty for any 7 violation of this chapter, any regulation promulgated thereunder, any 8 final or temporary order issued pursuant to section thirty-nine of this 9 article, any condition imposed in writing by the superintendent or bank- 10 ing board in connection with the grant of any application or request, or 11 any written agreement entered into with the superintendent. 12 § 17. Section 1302 of the real property actions and proceedings law, 13 as added by chapter 626 of the laws of 2002, is amended to read as 14 follows: 15 § 1302. Foreclosure of high-cost horne loans <:iIlci1?1.1l::>pJ:',iIllEl home loans. 16 1. Any complaint served in a proceeding initiated pursuant to this arti- 17 cle relating to a high-cost horne loan Q±"_~ subp]:"~me~ome ],2~Il, as 1?-l.!~El l8t.§:rIll1?<:iJ:'§ defined in section six-l <:l.Ilci,s,iJe....Ill of the banking law,r§,sp§c.:.... 19 ti~~j,yL must contain an affirmative allegation[, which allegation !nust 20 be proven to the satisfaction of the c01:1rt before entry of judqment by 21 defa1:1lt or otherwise,] tha ta,i::mt.El§t.iIll§i::h.§]?J:'Qc:::§§ci,iIlg,j.,s Q()IllIll§IlC::§ci, the 22 plaintiff [mortgage banker or exelnpt orgaIlization] ~ 23 (a,):i,,si::l1§QWI1§J:'<:l.Ilc:i}1Q],ci§J:'():fi::l1§,s1.1l::>j§Qt:IllQJ:'i::ga,g§a,Ilci IlQt§[ or .has 24 been delegated the authori.1::Y_to institute a mortgage foreclosure action 25 ~y the owner and holder of 1he s~iec~or~gage and note; and 26 (~J has complied with all of the provisions of section five hundred 27 ninety-fi ve-a 9f the banking_~aw and a,IlY rules and regulations promul .... 28 ga,t.ecit.l1§J:'ellIlci§J:'L section six-l ()r,s,iJe-Ill of the banking law,a,Ilci section 29 thi±"teerL.h.u...n...cired KQ1.J,J::' of --.!:l1-.l-...§...~]:"i:::i.c:::le. 30 2. It shall be a defense to an action to foreclose a mortgage for a 31 11,igl1.... Q9,si:: El9Ill§ loan or ,s1.1l::>PJ:',iIll§119Ill§lQaIl that the i::§J:'Ill13Q:.f the horne 32 loan [violates] N_j::he~c::.t:iQI'l-~~_1::l1§_lgnder~~Q1a,te any provision of 33 section six-lor SiJe....Ill of the banking law 9J:' SElQt.,iQIl thirteen hundred 34 iQl,lr of- j:]}~~ art-i...-c:J.e. 35 § 18. Paragraph b of subdivision 3 of section 5-501 of the general 36 obligations law, as amended by chapter 883 of the laws of 1980, is 37 amended to read as follows: 38 b. notwithstanding any other provision of law, the unpaid balance of 39 the loan or forbearance may be prepaid, in whole or in part, at any 40 time. If prepayment is made on or after one year from the date the loan 41 or forbearance is made, no penalty may be imposed. If prepayment is made 42 prior to such time, no penalty may be imposed unless provision therefor 43 is expressly made in the loan contract,pr9YiciElcit.11a,t.nQPElIl<:iltYIlla,y be 4 4 j..JllF..9sed . _:i.i_J=>f'Ql1~~:L~eA.-_J?Y_J3§!c::t.iQIl,smm Si2C.=-~_~ci si~=Ill_Qf _th~ -.&~n-.k~n...9'-m law. 45 In all cases, the right of prepayment shall be stated in the instrument 46 evidencing the loan or forbearance, provided, however, that the 47 provisions of this subdivision shall not apply to the extent such 48 provisions are inconsistent with any federal law or regulation. 49 § 19. The penal law is amended by adding a new article 187 to read as 50 follows: 51 ART ICr..E 187 52 .R,E: £; IDEmNTIAL. l1Qg'J:'~A,GE FRAUD 53 Section 187.00 Definitions. 5 4:L137_.P~_RE3J3~g§Ili::i<:i:L_IllO~t:.ga,g§!_ f:r~t:LcL in~ Jol1.§Lfifth _ct~]:"ee-, 55 J.m8-.7... JJ:L B§!,s~ci§!I'l.t~~~l_1!LOJ:'tg<ig§! _f~~t:Lci_-i-l1.-j:h§_%91.l±~h _ct~r_e5!-,. 56 187.1!5R.El,sicienti<:iJ.Illo:ri::gagElfJ:'<:illdintl1§!tl1iJ:'cl.cl.ElgJ:'ElEl.
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s. 8143--A 22
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1 section 177.10 of the penal law, health care fraud in the third degree 2 as defined in section 177.15 of the penal law, health care fraud in the 3 second degree as defined in section 177.20 of the penal law, health care 4 fraud in the first degree as defined in section 177.25 of the penal law, 5 robbery in the third degree as defined in section 160.05 of the penal 6 law, robbery in the second degree as defined in section 160.10 of the 7 penal law, robbery in the first degree as defined in section 160.15 of 8 the penal law, unlawful use of secret scientific material as defined in 9 section 165.07 of the penal law, criminal possession of stolen property 10 in the fourth degree as defined in section 165.45 of the penal law, 11 criminal possession of stolen property in the third degree as defined in 12 section 165.50 of the penal law, criminal possession of stolen property 13 in the second degree as defined by section 165.52 of the penal law, 14 criminal possession of stolen property in the first degree as defined by 15 section 165.54 of the penal law, trademark counterfeiting in the second 16 degree as defined in section 165.72 of the penal law, trademark counter- 17 feiting in the first degree as defined in section 165.73 of the penal 18 law, forgery in the second degree as defined in section 170.10 of the 19 penal law, forgery in the first degree as defined in section 170.15 of 20 the penal law, criminal possession of a forged instrument in the second 21 degree as defined in section 170.25 of the penal law, criminal 22 possession of a forged instrument in the first degree as defined in 23 section 170.30 of the penal law, criminal possession of forgery devices 24 as defined in section 170.40 of the penal law, falsifying business 25 records in the first degree as defined in section 175.10 of the penal 26 law, tampering with public records in the first degree as defined in 27 section 175.25 of the penal law, offering a false instrument for filing 28 in the first degree as defined in section 175.35 of the penal law, issu- 29 ing a false certificate as defined in section 175.40 of the penal law, 30 criminal diversion of prescription medications and prescriptions in the 31 second degree as defined in section 178.20 of the penal law, criminal 32 diversion of prescription medications and prescriptions in the first 33 degree as defined in section 178.25 of the penal law, :r;'§!13:i..cl§!Ilt:i..CilIU<:>r:1:.... 34 gage fraud in the fourth degre§!~1Ldefined in _secti~A_~~"L---1~__ ~~ll§ 35 penal _ law resl-de~ tial-!Ilor~.§g§!__f~~_uA_.i-Il_th(iLj::hi~A_<iegree_~~_9.efinE!-cl_:i..Il L
1 265.35 of the penal law, relating to firearms and other dangerous weap- 2 ons, or failure to disclose the origin of a recording in the first 3 degree as defined in section 275.40 of the penal law; 4 § 21. Paragraph (a) of subdivision 1 of section 460.10 of the penal 5 law, as amended by chapter 568 of the laws of 2007, is amended to read 6 as follows: 7 (a) Any of the felonies set forth in this chapter: sections 120.05, 8 120.10 and 120.11 relating to assault; sections 125.10 to 125.27 relat- 9 ing to homicide; sections 130.25, 130.30 and 130.35 relating to rape; 10 sections 135.20 and 135.25 relating to kidnapping; section 135.35 relat- 11 ing to labor trafficking; section 135.65 relating to coercion; sections 12 140.20, 140.25 and 140.30 relating to burglary; sections 145.05, 145.10 13 and 145.12 relating to criminal mischief; article one hundred fifty 14 relating to arson; sections 155.30, 155.35, 155.40 and 155.42 relating 15 to grand larceny; sections 177.10, 177.15, 177.20 and 177.25 relating to 16 health care fraud; article one hundred sixty relating to robbery; 17 sections 165.45, 165.50, 165.52 and 165.54 relating to criminal 18 possession of stolen property; sections 165.72 and 165.73 relating to 19 trademark counterfeiting; sections 170.10, 170.15, 170.25, 170.30, 20 170.40, 170.65 and 170.70 relating to forgery; sections 175.10, 175.25, 21 175.35, 175.40 and 210.40 relating to false statements; sections 176.15, 22 176.20, 176.25 and 176.30 relating to insurance fraud; sections 178.20 23 and 178.25 relating to criminal diversion of prescription medications 24 and prescriptions; sections 180.03, 180.08, 180.15, 180.25, 180.40, 25 180.45, 200.00, 200.03, 200.04, 200.10, 200.11, 200.12, 200.20, 200.22, 26 200.25, 200.27, 215.00, 215.05 and 215.19 relating to bribery; S§9:ti.9I'l$ 27 1-Jl7. ~QL_187--JJ5J 187.20 and 187.25 relating to residential mortgage 28 :f)::i3.:tlci, sections 190.40 and 190.42 relating to criminal usury; section 29 190.65 relating to schemes to defraud; sections 205.60 and 205.65 relat- 30 ing to hindering prosecution; sections 210.10, 210.15, and 215.51 relat- 31 ing to perjury and contempt; section 215.40 relating to tampering with 32 physical evidence; sections 220.06, 220.09, 220.16,220.18,220.21, 33 220.31,220.34,220.39,220.41,220.43,220.46,220.55 and 220.60 relat- 34 ing to controlled substances; sections 225.10 and 225.20 relating to 35 gambling; sections 230.25, 230.30, and 230.32 relating to promoting 36 prostitution; section 230.34 relating to sex trafficking; sections 37 235.06, 235.07 and 235.21 relating to obscenity; section 263.10 relating 38 to promoting an obscene sexual performance by a child; sections 265.02, 39 265.03, 265.04, 265.11, 265.12, 265.13 and the provisions of section 40 265.10 which constitute a felony relating to firearms and other danger- 41 ous weapons; and sections 265.14 and 265.16 relating to criminal sale of 42 a firearm; and section 275.10, 275.20, 275.30, or 275.40 relating to 43 unauthorized recordings; and sections 470.05, 470.10, 470.15 and 470.20 44 relating to money laundering; or 45 § 22. Section 78 of the banking law, as added by chapter 321 of the 46 laws of 1992, is amended to read as follows: 47 § 78. Powers of the bureau. If the criminal investigations bureau has 48 a reasonable suspicion that a person or entity subject to the jurisdic- 49 tion of the department has, in connection with activities authorized by 50 this chapter, engaged in, or is engaging in an activity which is a 51 misdemeanor or felony under this chapter or under [articles] Cirticle one 52 hundred fifty-five, one hundred seventy, one hundred seventy-five, one 53 hundred seventy-six, one hundred eighty, one hundred eighty-five, one 54 t11JI1_d~§ci__ §j.~h:tY=$E!Y§!~,_ one hundred ninety, two hundred, two hundred ten 55 or four hundred seventy of the penal law, the superintendent may under- 56 take such investigation as is deemed necessary, and in the enforcement
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s. 8143--A 28
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s. 8143--A 30
37 Name of Contractor ============= 38 Street Address~~~~=======~~====, 39 Qj,t.YL .... $t.Clt.E:l.,:z::i.P=.=============== 40 Facsimile :~===================
44 RCit.E:!: " 45 (i.iiJ Wi thin ten elClY$ :f..q1.:Lowin9 rE:!9E:!i.p-S oLaI1Qtice of cancellation 46 giYE!I1 i.I1. .Gl.C::<::()J:"ci~IlC::~ _.wi,t.I1 t.his .stll::>elivi$i.on!! thecl i ::;tJ::'§l:3£Elel pI:'e>p§lrty 47 consultant shall return aI"lyo:r;iginCilcQI1tiJ::'act.CiI"lelaI1Y ()t.llE:!I."doc.:1.l!llE:!Ilts 4 8 §j..9.Il.E:!(Ll::>.Y__9.J:'_p~.C>_v i cled__:Qy~.t..hE:!. l"lClJILE3.9li!"l§!:t"...__ . Ca!1P..§!.1J. a t..:i...9I L shE_lLJ::'.E:!_l_E:!Cl$.§! t.llE:!. 49 llQlll_E3.Qli!"l§!r __Q:E._ aU.__ .9.h.li.g9-tt.QI1$._ .t..9. _p~__CiI1Y_ .f§!"E:!:3._ .9.I."._C::9I1lP.E:!_1l1:lCit.i.9_11_t..9_J::ll§! 5 Od;is t:r:es;SElclP:r:9P§!J:'t.yc.:9Il$1.1:L.1:CiIlt..
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1 d. section four-a of this act shall of this act take effect July 1, 2 2010; 3 e. sections seven through twelve and een through sixteen of this 4 act shall take effect July I, 2009; 5 f. sections nineteen through twenty-fi~e of this act shall take effect 6 on the first day of November next succeeding the date upon which it 7 shall have become a law; and 8 g. provided however, effective imme~iately the promulgation of any 9 rules, regulations or actions necessary for timely implementation of the 10 provisions of this act are hereby authori~ed.