State Issues: Subprime Legislation
Last Updated: August 14, 2008
Overview:
The recent growth in subprime lending has turned the focus of lawmakers to predatory lending. While a federal law exists to enforce sanctions against predatory lenders, a number of states and localities have implemented their own anti-predatory lending standards. Some of the standards include requirements and restrictions that could harm the secondary market for subprime loans.
New Jersey
Status:
On June 23, the "Save New Jersey Homes Act of 2008” (A2780) (S1853) passed their respective houses and a final bill will be sent to the Governor for signature. Since the bills passed overwhelmingly in the Assembly and unanimously in the Senate, we would expect Governor Corzine to sign this legislation into law.
The final bill requires mortgage companies to notify borrowers at 60 and 30 days prior to the date the interest rates on their home loans reset. These notices would include the current interest rate under the introductory terms of the mortgage, the date at which the interest rate resets an explanation of how the reset interest rate would be calculated, and the best estimate by the creditor of the amount of the monthly payment after the reset date. The notice would also include a list of alternatives the borrower can pursue prior to the reset date, including refinancing or renegotiating with the creditor, or applying for an extension on the introductory interest rate. In addition, borrowers would be able to apply for an extension on the introductory mortgage interest rate, up to three years. Eligible borrowers would still have to pay back the interest deferred during the extension when they sell their homes, and would forfeit the deferment of interest if the borrower fails to make regular payments during the extension. Finally, the bill would allow eligible foreclosed borrowers to obtain a three-year suspension on foreclosure proceedings on an introductory rate mortgage. Homeowners who had already exhausted their three-year extension of introductory mortgage interest rates would not be eligible for foreclosure suspension.
Due to the input of SIFMA, its member firms, and other financial service groups, the bill has improved significantly from its introduction earlier this year. Amendments were made to the definition of "introductory rate mortgage," to clarify that a borrower who obtains a deferment of interest or other arrearages through a period of extension of an introductory rate mortgage, shall pay the creditor those amounts at the time of full repayment of the mortgage, which could be upon the maturity date, a refinancing, or a sale or other transfer of title to the property, provide that a creditor shall not require a borrower to limit or waive the borrower's rights to bring any claims, defenses, demands, proceedings, actions, or causes of action against the creditor as a condition of accepting an offer of any loss mitigation activities made available by the bill, and that the bill's penalty provisions apply only to willful actions that violate the bill's provisions, and that immaterial errors in a notice required to be provided by a creditor, shall not constitute a violation of the bill's provisions. While the bill has improved and some of SIFMA's recommended amendments were incorporated into the bill, SIFMA still have concerns with the modification of the underlying mortgage contracts and opposes the bill.
New York
Status:
S8143, sponsored by Senate Banks Chairman, Senator Farley and A10817-A, sponsored by Assembly Banks Chairman Towns passed their respective houses. The two bills reflect the agreement reached between Governor David Paterson, Assembly Speaker Sheldon Silver, and Senate Majority Leader Joseph Bruno. The final bill was returned to the Senate and will be sent to the Governor within the next 10 days for his signature.
The bill does the following:
- Requires that lenders send a pre-foreclosure notice to borrowers at least 90 days before foreclosure proceedings may be initiated. The notice is required to include a list of government approved housing counselors serving the borrower’s area.
- Establishes a mandatory settlement conference for foreclosure proceedings involving homeowners with certain subprime loans. Court appointed attorneys may be available for those who request assistance.
- Requires plaintiffs in an action against a homeowner to make an affirmative allegation that they have standing to bring the foreclosure action and have complied with certain applicable laws.
- Enacts a new provision in the Banking Law to establish strong consumer protections for subprime loans and minimum underwriting standards that protect borrowers.
- Establishes an ability to pay standard requiring lenders to make a reasonable and good faith determination of the borrower’s ability to repay the loan, including the principal, interest, taxes, insurance, assessments, points and fees.
- Requires brokers to act in the borrower’s interest by presenting loans most appropriate for the borrower.
- Requires all mortgage servicers servicing loans on residential property in New York to register with the Banking Department.
- Mortgage fraud would be classified as a crime under the Penal Law, making it easier for prosecutors to pursue cases. As the magnitude of the fraud increases, so would the criminal penalty.
- Funds the Subprime Foreclosure Prevention Services Program, a $25 million statewide program approved by the Legislature. This program includes grants and aid to non-profits to provide financial counseling, mediation, legal representation, negotiation, and other support services to borrowers who are facing default or foreclosure.
SIFMA continually provided key Senate staff and the Governor's office analysis and other relevant information during this session and intensely during the last week of these negotiations. SIFMA’s State Government Affairs Department worked closely with both the MBS and ASF Divisions of SIFMA, and SIFMA’s Federal Government Affairs and Corporate Communications Departments. As a result, the bill is much improved over the original version as proposed by both the Governor and the Assembly and does not contained the 1 year moratorium that was passed by the Assembly. However, SIFMA cannot support the final legislation while the bill still contains even limited assignee liability and other problematic provisions.
SIFMA Sends Letter to NY Governor Paterson Expressing Concern with Subprime Proposals - June 3, 2008
SIFMA Sends Letter to Speaker Silver Expressing Concern with Subprime Proposals - June 3, 2008
SIFMA Sends Letter to Senate Majority Leader Bruno Expressing Concern with Subprime Proposals - June 3, 2008
SIFMA Expresses Concerns with the loan servicing provisions included in NY Governor’s Program Bill #44 - May 12, 2008
California
Status:
CA AB 2359 died in the Senate Banking Committee in June. SIFMA was part of a coalition opposing CA AB 2359, legislation that would, among other things, allow loan borrowers to assert claims against persons who purchase or are assigned high-cost loans if those claims could have been asserted against the loan originator. While the legislation was amended to strike the assignee liability provisions, portions of the bill addressed arbitration in the mortgage lending context.
CA SB 1137, which would, among other things, make changes to the procedures that must
be followed before the holder of a mortgage may issue a notice of default or trustee sale,
passed the Assembly Appropriations Committee. SIFMA opposed earlier iterations of the
bill, but went neutral after the bill was amended five times.
SIFMA letter to California State Assembly Re: AB 2359, An act to amend Section 2953 of the Civil Code, relating to loans - June 11, 2008
Minnesota
Status:
Minnesota Governor Tim Pawlenty vetoed the amended version of the Minnesota Subprime Borrower Relief Act of 2008 (SF 3396) on May 29, 2008. The bill had passed both Houses by a narrow margin. SIFMA and the ASF testified and sent several joint letters in opposition to the bill. In the final joint letter to Governor Pawlenty, we urged him to veto the bill, and we were very pleased that the Governor stuck to his veto threat.
MN Governor Tim Pawlenty vetoes the Minnesota Subprime Borrower Relief Act of 2008 (SF 3396) - May 29, 2008
SIFMA and ASF Urge Minnesota Governor to Veto the Minnesota Subprime Foreclosure Deferment Act of 2008 (S.3396) - May 19, 2008
SIFMA and ASF send letter of opposition to the Minnesota Subprime Foreclosure Deferment Act of 2008 - March 14, 2008.
Subprime Foreclosure Deferment Act of 2008 introduced in the Minnesota House and Senate - March 5, 2008
- View Bill (H.F. 3612)
- View Bill (S.F. 3396)
North Carolina
Status:
North Carolina Governor Easley has signed HB 2623 into law. SIFMA worked with local counsel in North Carolina to provide input into a number of parts of this bill. Considering where this bill began we believe that a positive impact was made. The law includes pre-foreclosure notice provisions, and the ability for the Banking Commissioner to impose a 30-day delay upon certain foreclosure proceedings.
- View Bill