New Yorks Foreclosure Suspension Requests Up and Running
The New York State Superintendent of Banks, Richard Neiman, has a thing for the mortgage servicing industry.
By the time 47 state attorneys general and 37 banking and mortgage regulators announced their participation in the multistate effort to address national concerns “about faulty affidavits in foreclosure proceedings,” the New York State Banking Department had already sent letters to over 20 mortgage servicers.
New York’s foreclosure action suspension requests are up and running
Neiman called “incredibly irresponsible” those servicers who “are not doing the bare minimum” to comply with existing foreclosure documentation processing laws to avoid preventable foreclosures.
The multistate group has started investigating the foreclosure practices of mortgage servicers throughout the country. But New York State is one step ahead of other states and for a handful of reasons.
In a speech addressing Cooperative Federalism in Bank Supervision and Consumer Protection, Neiman offered his perspective on the financial crisis based on the “unique vantage point” he says he developed seeing it as superintendent of banks for the State of New York, as a member of the governor’s cabinet leading New York State’s foreclosure mitigation efforts, and as a member of the TARP Congressional Oversight Panel.
Neiman also serves on the executive committee of the newly created multistate group of regulators and law enforcement inquiring on servicer practices.
He explained that New York was one of the first states “to bring greater accountability” to the marketplace in an effort to counterbalance the fact that servicers have been largely unregulated in the past.
“The foreclosure crisis and disappointing results with loan modifications has thrown industry loss mitigation practices into the spotlight,” he said, so it only makes sense to intensify the mortgage servicing oversight.
In his view New York can offer “a template for national standards.”
To his credit, Neiman was behind the 2009 New York legislation that requires servicers to report to the state database following detailed business conduct regulations.
New York’s legally enforceable consumer protection requirements in mortgage servicing include establishing an explicit duty of care and fair dealing, consideration of modification prior to foreclosure with specific time frames for responding to borrowers, and reporting vital mortgage performance data on delinquencies to the Banking Department.
“Performance data, in particular, is a perfect example of what should be required to be reported at the federal level and in a standardized format,” Neiman said. “That is why I have long called for a national reporting requirement on mortgage performance. This would bring transparency and accountability to the servicing industry, much as the reporting of new mortgages under HMDA has done for originations.”
Department letters to mortgage servicers registered to do business in New York State require that these companies conduct internal reviews of their foreclosure practices and suspend foreclosure actions until a thorough analysis has been completed.
Servicers are expected to report about steps they are taking to review the foreclosure process in New York; include in the review results a description of the process for verifying affidavits; describe the corrective actions they take or intend to take in response to the review; give details on measures taken to ensure that affidavits filed in New York foreclosure actions are executed in compliance with New York law; notify the status of pending foreclosure actions in New York and measures taken to suspend such actions pending review.
In New York new regulations originally issued by the department in August went into effect on Oct. 1.
They impose mortgage servicing standards and protections for homeowners. For example, servicers are required to pursue loss mitigation “to avoid preventable foreclosures” and implement clear data reporting standards.
In accordance with Gov. David Paterson’s 2009 Mortgage Foreclosure Law New York State residential mortgage servicers must inform the Banking Department about all notices they sent to homeowners at least 90 days prior to a foreclosure filing.
Currently over 400 mortgage loan servicers report data to the Banking Department each week in compliance with the 2009 state law leading to an increase in the volume of filings submitted to the Banking Department. The goal is to build an expansive state level database.
Following its debut in June the second foreclosure notice report so far was published in the first week of October.
It shows that starting on Feb. 13, when data collection began 134,000 New York homeowners had received a foreclosure risk warning from the state’s banking department.
Between June and October the department sent over 76,744 90-day preforeclosure notices to homeowners who have fallen behind on their mortgage payments since May 31, 2010.
Cumulative findings are already identifying local trends.
For example, findings based on data gathered between Feb. 13 and Aug. 31 show the same four counties continue to face the highest total number of preforeclosure filings on owner-occupied, one-to-four family properties in the state. At the top is Suffolk County, followed by Queens, Nassau, Kings (Brooklyn) and Westchester.
About half, or 70,871, of the preforeclosure notices were sent on mortgages or refinances originated between 2005 and 2007.
Over 29% of the preforeclosure notices sent throughout the state were on loan amounts under $100,000 which according to Neiman is “significantly less than home values” suggesting that economic issues are at the root of current defaults.
In August the banking department launched a new online system that enables lenders, assignees and mortgage servicers to file information. It helps track and immediately report delinquency ratios allowing the department to better coordinate foreclosure prevention efforts with 10 nonprofit housing counseling partners throughout the state.
Of the 78,046 preforeclosure notices sent, over 50% were on mortgages less than 60 days delinquent, so there is a chance the counseling will help avoid foreclosure.
The 90-day pre-foreclosure notices received by New York borrowers do not indicate the beginning of the formal foreclosure process or that the household will subsequently receive a lis pendens; rather, the notices are designed to inform the borrower that they are at-risk of foreclosure and what preventative steps are available to them.
Information allows the banking department and its counseling partners to be proactive, says Neiman, because it not only identifies areas of at-risk homeowners before they fall into the foreclosure process, but also notifies homeowners of the risks that they face and the foreclosure prevention services available to them.
In November the Banking Department’s online filing system will begin accepting lis pendens (a written notice that a foreclosure lawsuit has been filed) information on mortgages that have a preforeclosure notice file in the system.
If a borrower does not become current on their mortgage within 90 days of receiving the notice, the lender then has the right to begin the formal foreclosure process by filing a lis pendens. This lis pendens data will be included in the department’s next preforeclosure notice report, which will be issued in January 2011.