Spitzer: Restrict housing lenders

He wants to avert foreclosures by requiring negotiations first

Joseph Spector
Albany bureau

ALBANY — Gov. Eliot Spitzer proposed new measures Tuesday to tighten restrictions on housing lenders and lower the number of home foreclosures in New York.

His proposal, which will be presented to the state Legislature, would require lenders to work with homeowners on settlements before starting foreclosure proceedings.

A lender would have to send a pre-foreclosure notice to a homeowner at least 60 days before initiating legal action. The sides would also have to participate in a settlement conference at the beginning of foreclosure proceedings.

State officials cited statistics showing that foreclosure actions, ranging from loan defaults to property auctions, rose about 55 percent from 2005 to 2007, to a total of 57,000.

The areas hit hardest were New York City and its suburbs, which accounted for 82 percent of all 2007 foreclosure actions.

Monroe County ranked seventh with about 5 percent of the statewide total. State officials said the statistics came from RealtyTrac, a California company that tracks foreclosure properties.

In a report last year, the congressional Joint Economic Committee predicted that foreclosures in New York will rise to about 68,000 by 2009.

Attorney General Andrew Cuomo, Comptroller Thomas DiNapoli and neighborhood organizations praised Spitzer's proposals, which also would tighten restrictions on whom banks can offer loans to.

"Foreclosure doesn't work for anyone, not the homeowner, not the bank," said Cuomo, who announced a deal Monday with mortgage financiers Fannie Mae and Freddie Mac to reform the home appraisal process.

Some bankers, though, warned that too many restrictions on lending would further hurt the housing market.

"We would oppose any action that would damage the prime mortgage market, which is an engine for the economy," said Michael Smith, president of the New York Bankers Association.

Also, some analysts cautioned that government should not be bailing out consumers who took on risky mortgages.

"Having the state government or federal government jump in and protect you from yourself ..., I find that bothersome," said Clifford Smith, a professor at the University of Rochester's Simon Graduate School of Business.

Senate Majority Leader Joseph Bruno, R-Brunswick, Rensselaer County, said he had not yet seen Spitzer's proposal but thought the state should help people keep their homes.

The Democratic-controlled Assembly has proposed a housing package that calls for $150 million for distressed homeowners and $30 million for counseling and legal services.

Spitzer said he thought the credit crisis had already caused a national recession. State officials already have begun to lower projections of tax revenue and expressed concern about rising interest costs for borrowing.