Foreclosure Moratorium Bill Gains Traction in Both Houses
Padavan and Brennan say time is right for Legislature to tackle sub-prime crisis
April 14th, 2008
As neighborhoods in Queens, Brooklyn and upstate New York face an ongoing barrage of foreclosures, two state legislators have proposed a bill that they hope would stem the tide of unraveling mortgages.
The bill calls for a year-long moratorium on foreclosures throughout New York. During the proposed 12-month respite, homeowners would be required to make court-ordered minimum monthly payments while renegotiating the terms with the lender. Though the bill, authored by State Sen. Frank Padavan (R-Queens) and Assembly Member James Brennan (D-Brooklyn), has enjoyed bipartisan support in the Legislature, banking industry leaders say the measure will simply prolong the housing crisis by postponing the unavoidable.
Padavan said his bill, which has 24 co-sponsors in the Senate, could curb the spiral of foreclosures that have hurt property values, destroyed credit ratings and forced many out of their homes.
“It’s not a bail-out or an abdication of the homeowner,” said Padavan. “This helps the homeowner keep his home off the market, which helps the economy, and at the same time the bank would get a return on the mortgage with interest, rather than being forced to become a real estate broker.”
Both Padavan and Brennan have seen their districts hit particularly hard by housing problems stemming from the sub-prime mortgage crisis.
“We are all hurt by the predatory practices that led us to this perilous position,” said Brennan, whose bill carries 72 co-sponsors.
According to RealtyTrac.com, a website that follows national trends in home foreclosures, Queens currently has 9,815 properties undergoing pre-foreclosure procedures, while Brooklyn’s Kings County has 7,983. Foreclosures in Queens lead the state, followed by Brooklyn, Suffolk, Nassau and Westchester. Monroe and Rockland Counties rank seventh and ninth, respectively.
New York is not alone in considering a moratorium as a means to slow the sub-prime mortgage crisis. On the presidential campaign trail, Sen. Hillary Clinton (D) has advocated a 90-day nationwide moratorium. The Massachusetts Legislature is currently considering a six-month moratorium, and housing activists in Michigan have called on their state to consider a moratorium that would last a record-breaking five years.
Some suggest that a national law might be a more effective means of attacking the problem.
“The idea of a moratorium at the national level of 90 days allows some breathing room to come up with more comprehensive solutions to the housing problem,” said James Parrott, deputy director and chief economist for the Fiscal Policy Institute. “But the states don’t have the financial resources that the federal government has to make these changes.” And there may be negative consequences for the state if New York imposes its own moratorium, said State Sen. Hugh Farley (R-Schenectady), chair of the Banking Committee.
“A lot of people in the industry don’t like the idea of limitations on lending,” Farley said. “We don’t want to do things that could dry up credit in New York State.”
Farley added that banks with federal charters, like Chase, Citibank and Bank of America, may be exempt from any new state laws passed.
As an alternative, Senate Majority Leader Joseph Bruno (R-Rensselaer) favors property tax cuts to aid cash-strapped homeowners, said a spokesperson, Scott Reif.
“Meaningful property tax relief helps people stay in their homes,” he said. “That’s our priority.”
The mortgage industry has been resistant as well, arguing that homeowners throughout the state would end up bearing the burden of increased costs on the housing industry.
“We think it can have a severe and negative impact if you restrict the foreclosure proceedings,” said Paul Richman, vice president of State Legislative Affairs at the Mortgage Bankers Association. “To account for that new risk, lenders would have to charge higher down payments and higher interest rates. It would make it more expensive for people to refinance their mortgages.”
Meanwhile, Gov. David Paterson (D) plans to move forward with a proposal left over from Eliot Spitzer’s administration requiring a 60-day notice in writing and an in-person settlement conference between borrowers and lenders before a foreclosure can take place. The bill would also give law enforcement extra muscle against mortgage fraud and foreclosure rescue scams.
“While this does allow an additional 60 days to settle the matter, it doesn’t propose an outright moratorium,” said Paterson spokesperson Morgan Hook. “We try to give people working with bankers more time to work out an agreement, but obviously, there will be situations where they can’t.”
As the sub-prime crisis continues to mushroom and have a ripple effect across the economy, however, advocates are pushing for fast action in Albany.
Bertha Lewis, executive director of the Association of Community Organizations for Reform Now (ACORN), a non-profit which provides counseling for low-income home buyers, favors a combination of the bills that uses benchmarks of Paterson’s proposal within an extended time frame for a moratorium.
“Our experience is that you can’t get the lenders to be serious about renegotiating loans,” Lewis said. “Drastic times call for drastic measures, and you got to slow down this train. A moratorium is a catalyst that will make these systems work.”
The bill calls for a year-long moratorium on foreclosures throughout New York. During the proposed 12-month respite, homeowners would be required to make court-ordered minimum monthly payments while renegotiating the terms with the lender. Though the bill, authored by State Sen. Frank Padavan (R-Queens) and Assembly Member James Brennan (D-Brooklyn), has enjoyed bipartisan support in the Legislature, banking industry leaders say the measure will simply prolong the housing crisis by postponing the unavoidable.
Padavan said his bill, which has 24 co-sponsors in the Senate, could curb the spiral of foreclosures that have hurt property values, destroyed credit ratings and forced many out of their homes.
“It’s not a bail-out or an abdication of the homeowner,” said Padavan. “This helps the homeowner keep his home off the market, which helps the economy, and at the same time the bank would get a return on the mortgage with interest, rather than being forced to become a real estate broker.”
Both Padavan and Brennan have seen their districts hit particularly hard by housing problems stemming from the sub-prime mortgage crisis.
“We are all hurt by the predatory practices that led us to this perilous position,” said Brennan, whose bill carries 72 co-sponsors.
According to RealtyTrac.com, a website that follows national trends in home foreclosures, Queens currently has 9,815 properties undergoing pre-foreclosure procedures, while Brooklyn’s Kings County has 7,983. Foreclosures in Queens lead the state, followed by Brooklyn, Suffolk, Nassau and Westchester. Monroe and Rockland Counties rank seventh and ninth, respectively.
New York is not alone in considering a moratorium as a means to slow the sub-prime mortgage crisis. On the presidential campaign trail, Sen. Hillary Clinton (D) has advocated a 90-day nationwide moratorium. The Massachusetts Legislature is currently considering a six-month moratorium, and housing activists in Michigan have called on their state to consider a moratorium that would last a record-breaking five years.
Some suggest that a national law might be a more effective means of attacking the problem.
“The idea of a moratorium at the national level of 90 days allows some breathing room to come up with more comprehensive solutions to the housing problem,” said James Parrott, deputy director and chief economist for the Fiscal Policy Institute. “But the states don’t have the financial resources that the federal government has to make these changes.” And there may be negative consequences for the state if New York imposes its own moratorium, said State Sen. Hugh Farley (R-Schenectady), chair of the Banking Committee.
“A lot of people in the industry don’t like the idea of limitations on lending,” Farley said. “We don’t want to do things that could dry up credit in New York State.”
Farley added that banks with federal charters, like Chase, Citibank and Bank of America, may be exempt from any new state laws passed.
As an alternative, Senate Majority Leader Joseph Bruno (R-Rensselaer) favors property tax cuts to aid cash-strapped homeowners, said a spokesperson, Scott Reif.
“Meaningful property tax relief helps people stay in their homes,” he said. “That’s our priority.”
The mortgage industry has been resistant as well, arguing that homeowners throughout the state would end up bearing the burden of increased costs on the housing industry.
“We think it can have a severe and negative impact if you restrict the foreclosure proceedings,” said Paul Richman, vice president of State Legislative Affairs at the Mortgage Bankers Association. “To account for that new risk, lenders would have to charge higher down payments and higher interest rates. It would make it more expensive for people to refinance their mortgages.”
Meanwhile, Gov. David Paterson (D) plans to move forward with a proposal left over from Eliot Spitzer’s administration requiring a 60-day notice in writing and an in-person settlement conference between borrowers and lenders before a foreclosure can take place. The bill would also give law enforcement extra muscle against mortgage fraud and foreclosure rescue scams.
“While this does allow an additional 60 days to settle the matter, it doesn’t propose an outright moratorium,” said Paterson spokesperson Morgan Hook. “We try to give people working with bankers more time to work out an agreement, but obviously, there will be situations where they can’t.”
As the sub-prime crisis continues to mushroom and have a ripple effect across the economy, however, advocates are pushing for fast action in Albany.
Bertha Lewis, executive director of the Association of Community Organizations for Reform Now (ACORN), a non-profit which provides counseling for low-income home buyers, favors a combination of the bills that uses benchmarks of Paterson’s proposal within an extended time frame for a moratorium.
“Our experience is that you can’t get the lenders to be serious about renegotiating loans,” Lewis said. “Drastic times call for drastic measures, and you got to slow down this train. A moratorium is a catalyst that will make these systems work.”
