Anti-Predatory Lender Law Not Approved

Last week a Mahattan Supreme Court ruling invalidated the City Councils anti-predatory lending law. Local Law 36, passed by the Council in 2002 despite Mayor Michael Bloombergs veto of the bill, prohibited the city from doing business with a financial institution or affiliate that came within their definition of a predatory lender.
The city immediately challenged the legislation in court, saying that the State Banking law pre-empts it because it imposes severe penalties for predatory lending practices. Justice Michael D. Stallman agreed and ruled that the state banking law "contains a comprehensive regulatory scheme" concerning the same predatory lending activity that Local Law 36 addressed.
"We think the judges decision was flawed," said Councilman Leroy Comrie, adding that he and his colleagues plan on appealing the decision. "There is a clear need to protect the uninformed from predatory practices."
Comries district is one of the main targets of predatory lenders unscrupulous financial institutions that hawk mortgages, home improvement loans, and refinancing with high rates, and either fail to perform a background check to see if the borrower has the income to meet payments, or misrepresent the terms of the loan. These agreements contribute to high rates of foreclosures and burden unsuspecting borrowers with large fees.
According to a study by the Neighborhood Economic Development Advocacy Project, in 2000 only 40% of all home purchase loans in Jamaica were conventional prime loans non-subprime lending compared to 79% boroughwide. Moreover, the study found that subprime lenders made 56% of refinancing loans in Jamaica, as opposed to 43% boroughwide. Southeast Queens also had the highest foreclosure rate in the borough.
Cathy Mickens, director of Neighborhood Housing Services in Jamaica (NHS), a non-profit that educates, counsels and provides financial assistance to low-income residents looking for home loans, said she is not surprised. She lives in Jamaica and says many of the predatory lenders hold offices along Hillside Avenue, and flyers advertising their services litter the doorways of most residencies.
The problem is so pernicious in her neighborhood that NHS and other housing services, legal aid organizations and advocacy groups formed the South Queens Anti-Predatory Task Force, which serves as a referral network. The task force members also hold seminars in communities to warn homeowners and homebuyers of deceptive lending practices.
"One of the concerns is the aggregate effect on a whole neighborhood, not just the individual owner," said Oda Friedheim of the Legal Aid Society, about a community with a high foreclosure rate.
When homes constantly foreclose and change owners, she said, it tends to drive up prices. Foreclosures have an especially harmful effect in minority communities, where the little accumulation of wealth is tied to home ownership. In this circumstance, a large amount of foreclosures transfers wealth out of the neighborhood.
"They need to know what they are getting themselves into," said Stephanie Bosco, an NHS community organizer, who noted that not all subprime lenders are bad, but education about them is key. "They really need to get information before they go to a subprime lenders."
Bosco and Mickens organization partners with the New York Mortgage Coalition, a group of nine conventional banks, to provide home loans that are within borrowers budgets. NHS also assists or refers victims of predatory lenders to legal services. However, Bosco said most come to her too late either right before their court date or eviction, diminishing the chance of keeping their homes.
The states Anti-predatory Lending Law, which was passed shortly after the City Councils, allows a borrower to bring action against a lender or mortgage broker within six years from the date of the loans origin, and can raise violations of the law at any time as a defense to a foreclosure action.
But, the City Councils counsel, Thomas McMahon, says that the state law neglects certain elements of subprime lending.
"Neither the state nor federal law address the most serious problem with subprime loans and predatory lending, which is the secondary markets," said McMahon.
A new trend, he said, is to pool subprime loans, many of which are predatory, and sell the debt on a secondary market to investors and conventional financial institutions. The bundled debt, he said, is less likely to default and has high rates, making it an attractive purchase.
Unlike state and federal laws, Local Law 36 required financial institutions doing business with the city to review their loans and debt purchases to ensure none were predatory. But, Justice Stallman ruled that the City Councils law was regulatory and, therefore, state and federal banking laws pre-empted it. McMahon argues that the law was not regulatory and was passed because predatory lending devastated city expenditures. The high rates of foreclosures associated with these loans, he said, siphon away property and sales taxes.
"I have to figure out a way to pay my taxes," said Norma Dick, a Cambria Heights homeowner and victim of predatory lending, who after paying her monthly mortgage bill of $1,461.88 and insurance coverage, has trouble affording her property taxes.
In 2000, worried that rising interests rates would affect her adjustable mortgage, she refinanced her home with Signature One from $135,000 to $165,000. Dick was told that her mortgage payment would include her insurance and tax payments but it did not. She also never got the $30,000 in refinancing she intended to use for home repairs. In addition, Dick also had problems with the checks she sent Signature One, which sold her mortgage to company after company until it ended at Fair Bank.She was told that the checks she sent were bouncing or were not received. Twice the mortgage company tried to foreclose, and once took her to court. With the help of NHS, she proved her checks had cleared and avoided foreclosure. But she still has problems meeting bills.
"I really put a noose around my neck," she said.