New York Real Estate – Proposal Aims to Protect Subprime

RISMEDIA, March 5, 2008-(MCT)-New York Gov. Eliot Spitzer plans to introduce a bill this week intended to help subprime borrowers statewide who are at risk of losing their homes. The bill would also establish further protection in the law to prevent a similar crisis in the future, according to a description of the bill provided to the Times Union on Monday.

Subprime mortgages are high-cost loans typically given to borrowers who have shaky credit, relatively low incomes or little money for a deposit. Rising default rates among holders of the loans have rocked the nation’s financial institutions, leading to a credit crisis that some believe is pushing the economy toward recession.

Subprime loans frequently have adjustable payment rates. Some borrowers can pay the introductory rate, but struggle to make the higher payments that come one or two years into the mortgage.

Spitzer’s bill would require lenders to send a notice to borrowers at least 60 days before legal action could be taken against a borrower who is behind on his loan. It would also require a mandatory settlement conference before any action can be taken.

The bill also would target foreclosure “rescue scams,” by prohibiting the taking of power of attorney from a homeowner except in very limited situations, prohibiting consultants from performing any services for the homeowner without a written contract and require services to be performed before any payment is made to the consultant.

The bill also includes language that would define and criminalize the act of mortgage fraud and would set a standard of behavior for mortgage brokers to act in a borrower’s best interest.