New York State and City Comptrollers and ACORN Announce Initiative to
Prevent Home Foreclosures
New Data Suggest Nearly 2300 Loans Made in 2006 in New York City Could End up in Foreclosure –
Costing NYC Half a Billion Dollars
Comptrollers Call on Mortgage Companies to Implement Principles to Save Homes
New York State Comptroller Thomas P. DiNapoli and New York City Comptroller William C. Thompson, Jr. joined with leaders of New York ACORN today to urge the nation’s mortgage lenders and servicers to take concrete action to stem the tide of mortgage foreclosure across New York State. The Comptrollers and ACORN released three principles that banks and lenders will be asked to put into action.
The call from the Comptrollers and ACORN comes as ACORN released new data regarding the cost of foreclosure to New Yorkers and New York City’s economy. According to ACORN’s report, Foreclosure Exposure 2: The Cost to Our Cities and Neighborhoods, 2,297 high-cost loans made in 2006 in New York City will likely go into foreclosure. The costs to all stakeholders involved could exceed half a billion dollars.
“The mortgage crisis is having serious effects on borrowers, lenders and on our global financial markets,” said DiNapoli who serves as sole trustee for New York’s $154.5 billion Common Retirement Fund. “Rampant foreclosures destroy neighborhoods and disrupt the economy. As the state’s Chief Financial Officer, I’m calling on all mortgage servicers to take every prudent measure to mitigate the risks in their mortgage portfolios and work directly with borrowers to prevent foreclosure.”
“Today, we are raising the bar and insisting that all lenders and servicers in New York State and City commit to real foreclosure prevention by implementing a set of principles that Comptroller DiNapoli and I have developed in partnership with ACORN to help borrowers save their homes,” said New York City Comptroller William C. Thompson, Jr. “This is a matter of great consequence in New York City. Like the rest of the country, we value homeownership as an important symbol of participation in the American dream. And yet in our region, that dream has all too often devolved into a nightmare.”
“Few banks are doing enough to help families facing foreclosure. In most cases they are only offering payment plans that spread out past due payments over the next 12 to 18 months, and then adding those payments onto the regular monthly mortgage payment. It’s the financial equivalent of throwing a dead weight on a drowning swimmer,” said Bertha Lewis, Executive Director of NY ACORN.
Today the Comptrollers and ACORN announced a joint initiative to enlist each of the banks and mortgage companies that service adjustable rate subprime loans in New York State and New York City to agree to the following Mortgage Affordability Principles:
- Engage in aggressive outreach to holders of subprime loans facing rate adjustment or that are in delinquency. If a borrower cannot afford their loan, the lender or servicer should take steps to determine if the borrower qualifies for a loan modification. This early intervention will prevent thousands of borrowers from becoming delinquent.
- Implement an affordability assessment that will help ensure a borrower’s ability to pay. The assessment should consider the borrower’s monthly household expenses, including all income, mortgage principal, interest, property taxes and insurance, long-term secured debt and a reasonable amount for food, clothing, and utilities.
- Emphasize long-term solutions, including loan modification and conversion of adjustable rate loans to fixed rate mortgages. Lenders and servicers of subprime ARMS should develop workable targets and criteria to permanently modify loans.
As two of the largest institutional investors in the nation, DiNapoli and Thompson will issue a joint letter asking mortgage lenders and servicers to adopt these three principles and to provide specific details on how they are mitigating the risks certain loans pose to their overall business. The letter will also ask the lenders and servicers to outline the steps they are taking to minimize foreclosures in their portfolios.
Across the country, according to First American Loan Performance, approximately 1.3 million ARMs are due for a rate increase by the end of 2008.
According to Moody’s Investor Service, in the first six months of 2007 an average of only 1% of loans facing an interest rate adjustment had been modified. The balance of loan workouts involved ‘repayment plans’ deferring the unpaid balance into the future, borrowers agreeing to sell their homes for less than their mortgage balance (known as a ‘short sale’) or homeowners turning over their deeds to their lender or mortgage servicer to prevent foreclosure.