Margert in the News

Fed Approves Plan to Curb Risky Lending
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By DAVID STOUT
Published: December 18, 2007

WASHINGTON ­ The Federal Reserve on Tuesday proposed new rules intended to protect would-be home buyers from unscrupulous lenders and, in a sense, from themselves.

Reacting to the crisis spawned by the proliferation of subprime mortgages to people who could not afford them, the Federal Reserve Board voted, 5 to 0, to endorse several protections for those thinking of getting “higher-priced mortgage loans.”

In general, the rules are meant to deter unscrupulous lenders from persuading people that they can afford loans that ought to be out of their reach. By extension, the rules are also intended to keep would-be buyers from deceiving themselves about the debt burdens they can shoulder.

“Our goal is to promote responsible mortgage lending, for the benefit of individual consumers and the economy,” Fed Chairman Ben S. Bernanke said. “We want consumers to make decisions about home mortgage options confidently, with assurances that unscrupulous home mortgage practices will not be tolerated.”

Details of the proposed rules, which could take effect next year after a period for public comment and possible revisions, can be read on the Fed’s Web site, www.federalreserve.gov. What the Fed termed the “four key protections” are these:

Creditors would be barred from lending without documenting a borrower’s ability to repay the loan. Creditors would have to verify a borrower’s income and assets. Prepayment penalties would be restricted. Finally, creditors would have to establish escrow accounts for taxes and insurance.

“Unfair and deceptive practices have harmed consumers and the integrity of the home mortgage market,” said Fed Governor Randall S. Kroszner. “We have listened closely and developed a response to abuses that we believe will facilitate responsible lending.”

What the Fed has been hearing in recent months is a complex blend of personal hardship and dire news for the nation as a whole, as waves of foreclosures have swamped the housing market and threatened to mire the economy in a recession. The housing boom of the first several years of the decade seems almost as distant as the boom in technology stocks ­ but economists have warned that the fallout from the housing slump could be much worse than that from the “dot com” bubble.

Many home-buyers whose little slice of the American dream has turned into a nightmare were undone by “teaser rates” dangled in front of “balloon mortgages.” When the tempting original rates were supplanted by much higher rates built into the loan, many homeowners could not make the monthly payments.

But those personal misfortunes ­ whether the result of individual misjudgment, excessive optimism, shady lending or all of those ­ have mushroomed into a national problem, further complicated by the packaging and reselling of mortgages in ways that are so arcane that even some bankers acknowledge they are befuddled by them.
 

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Opportunity NYC Program Makes First Payments to Families
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New York City mayor Michael R. Bloomberg has announced cash transfers totaling $740,000 to 1,431 families as part of the Opportunity NYC program to reduce poverty among the city's poorest residents.

Based on the international model of conditional cash transfer programs, Opportunity NYC is the first CCT in the United States. The program awarded an average of $524 to families that completed specific activities related to education, health, and workforce participation and training. To qualify for and receive the payments, participants must submit coupons verifying the activities they've completed during each of the bi-monthly program periods. Families can earn an average of $4,000 to $6,000 a year depending on their family composition and the activities they completed. The program will last for two to three years.

Unlike conventional approaches to poverty reduction that use social services to create a safety net for those in need, incentive-based strategies increase participation in targeted activities to decrease factors that contribute to poverty and long-term dependency. Education targets include superior school attendance for children, sustained high achievement or improved performance on standardized tests, and parental engagement in children's education. Health targets include maintaining adequate health coverage for all children and adults, and age-appropriate medical and dental visits for each family member. Workforce targets include sustaining full-time work or combining work with approved education or job training.

"It's a positive early sign that many families are meeting the program's targets, and in the process, they're achieving much more," said Mayor Bloomberg. "We are hopeful that the experiences gained through the program will help more families climb out of poverty and become self-sufficient, and we will be rigorously evaluating all aspects of the program as we move forward."

“Mayor Bloomberg Announces First Incentive Payments to Families in Opportunity NYC, the Nation's First Conditional Cash Transfer Program.” Office of New York Mayor Michael R. Bloomberg Press Release 12/17/07.

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NYS Assembly Leadership Advances Legislative Package Aimed at
Addressing Subprime Lending Crisis
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Assembly Speaker Sheldon Silver, Assembly Banking Committee Chair Darryl C. Towns and Assembly Housing Chair Vito Lopez today announced legislation aimed at bringing relief to families and communities across New York impacted by the national subprime lending crisis.

The comprehensive measure would provide $150 million in direct financial relief to homeowners, as well as $30 million for counseling and legal services. The legislation would help New York's working families by providing direct assistance to those facing crisis and take steps to prevent similar occurrences.

"Homeownership is one of the most basic American dreams, but the pursuit of this dream has resulted in a nightmare for the many borrowers who were enticed with subprime loans that they can no longer afford," said Silver (D-Manhattan). "The proposal being advanced by the Assembly Majority today includes legislation to assist struggling homeowners, provide counseling and reform questionable industry practices. Our plan is a much-needed mix of direct financial assistance, support for counseling and legal services, and active lender participation in solving this problem."

"The mortgage industry aggressively marketed mortgages with low 'teaser' interest rates. The price for these initially low rates are rates that increase significantly after several years," said Towns (D-Brooklyn). "Other questionable loans include interest-only mortgages and mortgages made with little or no income verification. These schemes have also placed millions of Americans, particularly in low-income communities and communities of color, at risk of foreclosure."

"Owner-occupied houses form the bedrock that keeps urban communities strong and vibrant," said Lopez (D-Brooklyn). "In order to protect our communities from this crisis and prevent their collapse, we must expeditiously implement the remedial and preventative measures contained in this package."

"Enhanced funding for legal services means that many innocent homeowners duped into unaffordable subprime mortgages will have their rights protected and be able to defend against unwarranted foreclosure and eviction," said Assemblywoman Helene Weinstein, chair of the Judiciary Committee.

"Faced with voluminous mortgage documents containing page after page of dense legalese, many consumers entered into mortgage agreements that they did not fully understand," said Assemblywoman Audrey Pheffer (D-Queens), chair of the Consumer Protection Committee. "In order to ensure that consumers are able to make informed choices in the mortgage marketplace, we will significantly increase funding for housing counselors and legal service professionals who guide consumers through the mortgage process."

Read the full press release.

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Neighborhood and Rural Preservation Programs Annual Report Sent to the Legislature
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DHCR is pleased to present to you a special edition of the Neighborhood and Rural Preservation Programs Annual Report to the Legislature. In 1977, the State Legislature appropriated $10,000 each to help fifty grass-roots organizations stem the tide of abandonment and deterioration plaguing communities statewide. By all accounts, it was a decisive moment in the history of New York State. This edition of the report is being made available to the public on-line for the first time in our history. Please take a moment to read about the important work of New York State's premier network of not-for-profit community-based organizations.

View the annual Report - (PDF File Information) (2.08 MB)

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