SUBJECT:

PURPOSE:

Albany
Hamilton Hearing Room B
Tuesday, May 29, 2007
10:30am
Legislative Office Building, 2nd Floor, Albany, New York

It is estimated that the subprime lending crisis in the United States will result in almost 2.5 million foreclosures nationwide, tens of thousands in New York State alone. Exotic, newfangled mortgages with low "teaser" interest rates that increase significantly after several years, interest-only mortgages, and mortgages made with little or no income verification have helped drive the homeownership rate in the United States to a record seventy percent. These subprime loans are made possible in part by mortgage securitization, where pools of principal and interest payments for mortgages are bundled into securities and sold to investors, a process that diversifies the risk of lending to borrowers with less than optimal credit. Nontraditional credit and securitization have been useful tools to make credit available to those who might not otherwise qualify.

Unfortunately, many of the borrowers who took advantage of subprime loans have been unable to afford the mortgages they received. As interest rates have risen and property values decreased, foreclosures have occurred at alarming rates and delinquencies continue to climb. Many borrowers were duped into mortgages they could not repay, or simply made poor financial decisions. The consequences are grim. Millions may lose their homes. Even borrowers with good credit are having more difficulty finding lenders willing to grant them mortgages. Many mortgage lenders are going bankrupt. Credit standards are tightening. Investors are losing money on subprime mortgage bonds. Economists predict that the effect of these lending practices on the economy will be felt for years to come.

This hearing will examine lending practices in the subprime market, steps that can be taken to help those facing foreclosure, and what can be done to prevent this situation from recurring. This is the first in a series of hearings planned on this issue. Future hearing dates and locations will be announced.

Please see the reverse side for a list of subjects to which witnesses may direct their testimony.

Persons wishing to present pertinent testimony to the Committees at the above hearing should complete and return the enclosed reply form as soon as possible. It is important that the reply form be fully completed and returned so that persons may be notified in the event of emergency postponement or cancellation.

Oral testimony will be by invitation only and limited to a duration of 10 minutes. In preparing the order of witnesses, the Committees will attempt to accommodate individual requests to speak at particular times in view of special circumstances. These requests should be made on the attached reply form or communicated to Committee staff as early as possible.

Ten copies of any prepared testimony should be submitted at the hearing registration desk. The Committees would appreciate advance receipt of prepared statements.

In order to meet the needs of those who may have a disability, the Assembly, in accordance with its policy of non-discrimination on the basis of disability, as well as the 1990 Americans with Disabilities Act (ADA), has made its facilities and services available to all individuals with disabilities. For individuals with disabilities, accommodations will be provided, upon reasonable request, to afford such individuals access and admission to Assembly facilities and activities.

SELECTED ISSUES TO WHICH WITNESSES MAY DIRECT THEIR TESTIMONY:

1. Describe the mortgage lending process. What information about borrowers are mortgage lenders and brokers legally required to obtain? What information are lenders legally required to provide to potential borrowers about the terms of the credit for which they are applying? What, if any, improvements to New York law and regulations might be useful so that borrowers make more informed decisions before obtaining a mortgage? What improvements to the laws and regulations governing mortgage brokers should be made?

2. In general, for the last several years, approximately what percentage of mortgage loans were made by entities over which the New York State has jurisdiction with respect to laws pertaining to mortgage lending? With regard to the mortgage lending process, what control does the State have over loans made by national banks or their operating subsidiaries, particularly in light of the recent U.S. Supreme Court case, Watters v. Wachovia Bank, N.A.?

3. National studies report that minority and low-income homeowners are disproportionately represented in the subprime mortgage market. Have minority or low-income borrowers been targeted for or disparately affected by abusive or deceptive mortgage practices?

4. How do prime and subprime loans differ? What aspects of subprime loans make such loans even less affordable when the borrower is unable to make timely payments (i.e., prepayment penalties, absence of escrow accounts)? What class of borrowers should qualify for interest-only mortgages or adjustable rate mortgages?

5. What improvements can be made in law and/or regulation to ensure that borrowers do not take on mortgages they cannot afford while preserving the availability of credit to those with less than optimal credit history?

6. How many foreclosures have occurred in New York or are currently underway? What is the geographical breakdown within the State of properties in foreclosure? Does the foreclosure process provide adequate notice for homeowners facing foreclosure? How can the foreclosure process be improved to protect homeowners?

7. What can or should be done to help those homeowners facing foreclosure? What are the responsibilities of lenders? What can community-based organizations do to assist those in need? What role can the State play? What kind of financial assistance could the State offer and is legislation necessary to authorize such assistance? Should the State institute a mortgage foreclosure moratorium? What would be the effect of such a moratorium?

8. Those with poor credit pay higher interest rates because of a greater risk of default. Mortgage securitization has made subprime loans possible because of diversification of risk of lending to those with suboptimal credit. When interest rates were falling, these high-yielding asset-backed securities became attractive, bringing increased capital to the mortgage market. As a result, subprime loans became more available and homeownership increased. However, for those subprime borrowers now facing foreclosure, how does securitization affect them and the remedies available to them?

9. What is the liability, or what should it be, of investment banks which provide financing to mortgage banks that make fraudulent loans?

10. What is the effect of the subprime lending crisis on "Alternative A" loans (loans made to those with between prime and subprime credit)? How is this crisis affecting those with good credit?

11. How is the subprime lending crisis affecting the economy generally? How will the tightening of credit affect low- and middle-income New Yorkers? What will the effect be on the housing market in the years to come and on the retail sector that serves these people?

PUBLIC HEARING REPLY FORM

Persons wishing to present testimony at the public hearing on May 29, 2007 are requested to complete this reply form as soon as possible and mail it to:

Yolanda Bostic
Legislative Analyst
Assembly Committee on Banks
The Capitol, Room 520
Albany, New York 12248
Email:Bosticy@assembly.state.ny.us
Phone: (518) 455-4928
Fax: (518) 455-5182

I will address my remarks to the following subjects:

I will require assistance and/or handicapped accessibility information. Please specify the type of assistance required: