ELMONT, N.Y. – Concerned by skyrocketing foreclosure rates and the proliferation of predatory mortgages that have afflicted thousands of families in New York, Senator Craig M. Johnson, (D-Port Washington), today hosted a public hearing on the sub prime mortgage industry in Long Island.
The forum, held at the Elmont Public Library, is the latest in a series of statewide public hearings headed by Senator Jeff Klein, (D-Bronx/Westchester), that examines the pitfalls of sub-prime mortgages.
The evidence and testimony gathered during these hearings will help develop legislative safeguards to protect consumers and hold unscrupulous lenders accountable, Senator Johnson said.
"This is a part of the banking industry that currently operates with little transparency and accountability," Johnson said. "Many sub-prime lenders operate ethically and fulfill a very important function of providing mortgages to those who are otherwise unable to receive one. But, we need to protect our residents from companies that seek to take advantage of those who want to fulfill the American Dream."
"The sharp rise in foreclosures tells me that we are currently failing in this mission," he continued.
Assemblyman Tom Alfano, (R-Elmont), Cassie Walbradt, special assistant to the State Superintendent of Banking, and Richardo Aguirre, special counsel for the New York State Department of State, joined Senators Johnson and Klein on the panel.
Sub-prime mortgages are loans offered to individuals whose credit history prevents them from securing a low-rate. A typical sub-prime borrower has a low credit score and a history of late payments, charge-offs or bankruptcies. Since they are considered at high risk of default, they receive less-than favorable terms, including higher interest rates, regular fees or an upfront charge.
In some cases, sub-prime borrowers are drawn in by a low introductory rate, which then sharply increases within a few years, making it difficult, if not impossible, to keep up with monthly payments.
These sub prime borrowers are also vulnerable to predatory practices such as "packing," a practice where excessive fees, such as pre-payments and high penalties, are hidden in the fine print, and "loan flipping", in which a broker refinances the loan every two years at an increasing rate that results in a downward spiral of debt and hidden balloon rates.
Panel members heard about the consequences of these horrific practices first-hand from struggling sub prime borrowers who testified at the forums. Representatives of the mortgage industry, community groups and local officials also offered their testimony to the panel.
These hearings came on the heels of a report on the sub prime crisis by Senator Klein, which showed that Long Island had the dubious distinction of leading the state in sub-prime foreclosure rates.
According to the report, more than 20 percent, or 28,493, of New York state's sub prime mortgages that were issued in 2005 will end in foreclosure.
In Long Island, that number jumps to 22 percent, making it the region with the highest rate of foreclosure in New York and the 15th highest in the country. From 1998 to 2001, only 7.2 percent of sub prime loans ended in default.
The report also showed an extremely high foreclosure rate in the New York City-White Plains area (21.7 percent), and double-digit foreclosure rates in cities and areas like Ithaca (17.8 percent), Buffalo-Niagara Falls (15.6 percent) and the Capital Region (17.4 percent).
"This is a statewide and nationwide crisis," Senator Klein said. "This report shows just how broad these predatory practices have spread."
The previous hearings were held in Brooklyn and Westchester.