Story originally from PILOR News Release
NEWS RELEASE
For immediate release:
Tuesday, April 1, 2003
For more information:
Ruhi Maker PILOR 585 454-4060
Sarah Ludwig NEDAP 212 680-5100
NEW YORK HOMEOWNERS GAIN NEW MORTGAGE PROTECTIONS
NEW LAW PROHIBITING PREDATORY LENDING PRACTICES
FOR HIGH-COST LOANS GOES INTO EFFECT TODAY—NO FOOLING!
New Yorkers seeking mortgages, to refinance existing home loans or to tap the cash built up in their homes gain important protections when anti-predatory lending legislation became effective today, according to New Yorkers for Responsible Lending (NYRL), a statewide coalition of more than 100 consumer, senior and civic groups.
Signed into law by Governor George Pataki last October, the new homeowner protection law regulates subprime mortgage lending in New York. Subprime mortgages are mortgage loans that have high interest rates—well above the prime rate—and high fees. Subprime loans are made to borrowers with less-than-perfect credit, as well as to those homeowners with good credit who do not realize they are eligible for prime rates and are pressured into taking costlier loans.
"This new law is a giant step forward in terms of protecting New Yorkers who are refinancing their mortgages or accessing the equity in their home," said Ruhi Maker, Senior Attorney at the Public Interest Law Office of Rochester (PILOR). "It tells unscrupulous high-cost lenders that they are not welcome in New York State, while leveling the playing field for responsible lenders."
Ms. Maker and Barb van Kerkhove, CRA Project Associate, serve on the Steering Committee of NYRL, which advocated for passage of this bill.
Predatory mortgage lending practices, such as making unaffordable loans, refinancing loans without benefit to the borrower and packing expensive, unnecessary insurance products into loans, occur overwhelmingly in the subprime, or high-interest, high-cost segment of the market. Abusive and deceptive predatory loans are a growing problem in all areas of the state—urban, suburban and rural.
Studies by PILOR indicate that subprime lending grew by over 600 percent in the Rochester metropolitan area between 1993 and 1999. In 2000, subprime lenders captured over one-quarter of the refinance market in the metro area and 42 percent of the city’s refinance market. Moreover, according to Maker "we are so overwhelmed with clients who have been victimized by abusive lending practices that we have had to temporarily close intake." Homeowners who have contacted PILOR to obtain redress from their high cost loans have each been stripped of $50,000 -$100,000 in home equity.
"Rochester homeowners have been robbed of millions of dollars in equity by abusive loans. This law will go a long way to preserve asset building in our rural and urban communities." stated City Councilman Wade Norwood.
The new law, Chapter 626 of the Laws of 2002, applies only to "high-cost loans," i.e., residential mortgages that have either an annual percentage rate that is more than 8% above the interest rate for a comparable length Treasury Bill or where points and fees exceed 5% of the total loan amount. Certain predatory practices also are barred for "high-cost loans," including: making loans that are objectively unaffordable for the borrower; financing credit insurance; excessive broker compensation; and "loan flipping," i.e., refinancing a mortgage without benefit to the homeowner.
Moreover, borrowers will now be able to defend themselves to prevent loss of their home in foreclosure proceedings if they can demonstrate that the loan violated the homeowner protection law, and even if the loan was sold on the secondary market. Under "assignee liability," purchasers of predatory mortgages (assignees) can be held liable.
"However, New York's anti-predatory lending law, strictly caps liability against mortgage purchasers or assignees," emphasizes Pamela Sah, an attorney with the Foreclosure Prevention Project at South Brooklyn Legal Services. "The New York law takes a balanced approach that allows victims of predatory lending practices to defend their homes, but ensures that the secondary mortgage market is not disrupted."
Standard and Poor's Rating Services and Fitch Ratings announced last week that they would rate mortgage pools containing high-cost New York mortgages.
"The New York legislature made sure the law would be reasonable while providing meaningful protections for homeowners," noted Ms. Maker.
The new law only applies to loans made from today forward. New York is one of only four states—along with North Carolina, Georgia and California—to have passed laws that provide protections for homeowners with subprime mortgages.
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