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New Schumer Analysis: New York At Tip Of Foreclosure Crisis - Nearly 100k NY Families Likely To Lose Their Homes In The Next Two Years

Schumer: The Subprime Market is the Wild West of Mortgage Loans and We Need a Sheriff in Town

Senator Introduces Plan to Ensure Federal Regulators Protect Borrowers and Take Charge of this Usurious Market

As the subprime mortgage market goes from boom to bust, Senator Schumer revealed today that foreclosures will soar in New York in the next two years, with nearly 100,000 families throughout New York at risk of losing their homes by the end of 2008. Schumer, standing with a homeowner with a subprime loan whose rates could triple in the next three years, today unveiled his plan to ensure that the subprime lending market, which has been able to operate with little oversight from federal regulators is finally scrutinized on a federal level. Schumer outlined a plan today to regulate these rogue mortgage lenders, eliminate "liar" loans and establish a foreclosure prevention task force.

"The subprime market is the wild west of mortgage loans and its time we bring a sheriff into town," Schumer said. "The first step is making sure that borrowers are protected from these usurious lenders. Its long past time that we ensure that working people are protected from loans that promise them the world and instead give them a mountain of debt, leaving them homeless."

The impending avalanche of mortgage foreclosures in the New York City metropolitan area and across the nation can be directly tied to the exploding popularity of costly nontraditional mortgage products over the past decade. These nontraditional mortgage products, which include hybrid adjustablerate mortgages with intricate interest rate terms and conditions, have been sold to middle and lowerincome families in record numbers. While they offer attractive and easy lending terms, they also include excessively high interest rates that can sharply spike, leaving new homeowners struggling to meet rising mortgage payments.

The problem is only magnified in the subprime mortgage market, where borrowers with weaker credit histories and lower incomes have flocked to mortgages that have higher interest rates than prime mortgages. Despite subprime loans being universally more expensive than prime loans, they still remain a main source of capital for millions of lowincome Americans, especially minorities, who wish to fulfill the American Dream and purchase a house.

Subprime loans leave borrowers in an extremely precarious financial state. In comparison to a prime loan, a subprime loan is more costly due its higherthannormal interest rates and the borrower being saddled with a high number of points that must be initially paid to obtain the loan. (A point is one percent of the amount being borrowed.) The interest rate and points charged depend on various criteria, including credit history, income, assets, type of property, loan amount, loan duration and the amount of the down payment. Making matters worse is that many of these bor�rowers had to pay costly origination fees on their mortgages, which left them with little cash left to invest in their new homes or to service their mortgages when their adjustable interest rate rises.

The most popular "affordable" subprime loans are adjustable rate mortgages (ARMs) that offer an initial fixed rate that is set low often called a "teaser" rate. The rate resets after an initial fixed rate period (commonly two to three years), to a more onerous rate that leads to a significantly higher mortgage payment that lowincome borrowers will have difficulty affording. These ARMs, commonly known as "2/28s" or "3/27s" represented more than 60 percent of all subprime mortgages originated in 2006. The FDIC estimates that this year alone, one million of these loans will reset to higher rates. Next year, 800,000 more will reset to higher rates.

Over the next two years, nationwide 1.8 million risky subprime borrowers who were "teased" into their loans may be forced to foreclose because they will be hit with steep rate increases that they can not possibly afford. This follows in the wake of more than 1.2 million foreclosures in 2006. According to a report by the Center for American Progress the number of homeowners who entered into some stage of foreclosure in December 2006 was up 35% from December 2005. These numbers are only expected to soar in the coming years as the interest rates reset.

In New York the numbers are some of the highest in the country. A new analysis released today by Senator Schumer's office showed that in the next two years 91,000 families will be at risk of foreclosure to do these usurious lending practices. In the New York Metropolitan area alone, an estimated 53,000 families will see their mortgages reset to onerous rates.

"The bottom line here is that the subprime bust is leading us right into a foreclosure boom, and thousands of people will be left in the lurch," Schumer said. "We are staring straight into the barrel of the biggest foreclosure crisis ever, and unless action is taken economic forces will have no choice but to pull the trigger."

In an effort to protect homebuyers from usurious lenders and potential foreclosure today Schumer unveiled his plans for legislation to stem the tide of subprime mortgages. Schumer's threepoint plan will:

Establish a National Regulatory System for Mortgage Brokers: The subprime lending business has become an unregulated mess and a new authority is needed to regulate rogue mortgage lenders and brokers who operate below the radar of federal regulators. Schumer's plan will fill the gaping void in our federal regulatory structure and create a national system for ALL mortgage brokers and loan officers, including those at nonbank companies.

Eliminate "Liar" Loans: It has become too obvious too late that for many of these defaulting loans, the borrowers could never have paid them. They were mathematically designed to fail the homeowner and give the lying mortgage broker fat fees. It is not right that families that got "teased" into their house with the promise that they could afford the loans, will alltopredictably be kicked out when their loans reset to onerous rates. To prevent this tragedy from happening again, Schumer's bill will establish a suitability standard for borrowers so that they will never issue a loan that the borrower cannot afford. It will also prohibit prepayment penalties, statedincome or low documentation loans, and "pick a payment" options that are used to deceive borrowers into signing their dream of homeownership down the drain.

Create a NYS Foreclosure Prevention Task Force: Schumer plans to bring together private sector and nonprofit groups in New York State to keep the nearly 100,000 residents who are standing on the edge of the foreclosure cliff from losing their homes. The focus would be on helping homeowners restructure their individual loans, offer forbearance periods, assist homeowners sell distressed properties for borrowers that choose to no long own, provide credit counseling and negotiate with credit reporting agencies to delete defaults or forecloses for borrowers that are considered to be in failing, predatory loans. The working group would include elected officials, regulators, financial institutions, and groups (ACORN, Operation Hope, NeighborWorks, Neighborhood Economic Development Advocacy Project, and others).