The subprime mortgage crisis is hitting home in New York state, with 57,350 foreclosure filings in 2007 a 55 percent increase dating to 2005. And the situation seems to be worsening. Up to 50,000 New York families could lose their homes to foreclosure by the end of this year according to Gov. David Paterson.
The state”™s response thus far has been modest, with $25 million included in the newly passed budget to counsel homeowners about ways to help forestall foreclosure on their homes, but no money included to aid those already in the throes of foreclosure.
But Assemblyman Darryl C. Towns, chairman of the Banking Committee and a Brooklyn Democrat, said that he anticipates more aggressive action will be forthcoming from Albany as the subprime problem plays out statewide and nationally. “By no means are we popping champagne saying that we have dealt with this,” Towns said. But he said a roughly $5 billion budget deficit had imposed severe limitations on what the state could afford.
And he does not think the worst is over. “We understand how intricately connected New York state is to this subprime issue. Not only is this affecting our communities and constituents, but the problem nationally dramatically affects us in New York because we are the host of the financial industry. So it hits us as a double-whammy,” Towns said.
In finalizing the state”™s 2008-2009 budget, legislators and the governor agreed on a $25 million fund. The subprime foreclosure prevention services program includes grants and aid to nonprofit groups to provide financial counseling, mediation, legal representation, negotiation, and other support services to borrowers who face default or foreclosure.
“This program will help reverse this trend and allow a great many senior citizens and families who”™ve been targeted by subprime lenders to hold on to their homes,” said Paterson after the budget passed. But it doesn”™t provide money to aid homeowners in imminent danger of losing their homes.
Overall, it is estimated that 20 percent of subprime loans will end in foreclosure. According to RealtyTrac, in 2007 there were 57,350 foreclosure filings in New York state, representing a 55 percent increase over 2005 levels.
On average nationally, a foreclosure on a home reduces the value of neighboring homes by about $7,000. If the full impact of the pending subprime mortgage foreclosures develops, the result could be an average $18,000 decrease in New York home values, according to statistics cited by the Empire Justice Center, a nonprofit public advocacy group that studied the subprime situation in New York.
Statewide, there were about 142,000 sub prime loans recorded in New York state under Federal Reserve data, of which 42,000 or thirty percent were in jeopardy as of October 2007.
(Jeopardy was defined as more than one month late making payments or already in foreclosure.) Twenty percent of troubled New York loans are late; 10 percent are already in default. And another 20 percent of the subprime loans will reset their mortgage values between now and October 2009; experts expect more bad news as payments balloon.
The state Legislature rejected a $180 million bill sponsored by Towns and Assembly Speaker Sheldon Silver that included $150 million funds to aid homeowners threatened with imminent loss of their homes.
“Its not about bailing out or erasing anything, but giving an opportunity for buyers to find their way to more conventional loan situations,” said Towns. “A bank would have to be a willing participant.”
Some banks in the Hudson Valley contacted in connection with the problem declined to comment, instead referring to the New York Banker”™s Association. NYBA has not yet taken a public position on the subprime mortgage matter, except strongly to oppose imposition of any new taxes on the financial industry that might arise from the state budget shortfall.
Towns expressed hope that further action will come from the state to alleviate the prospect of foreclosures, saying that even individual lost homes “impact entire neighborhoods.” He could not predict when any additional action might occur, or whether it would even transpire before the state legislature”™s annual close of session this summer, saying that events could dictate what actions are taken. He said the money would have to be found in the current budget. “We may have to shift it a little bit,” he said, but added that both the Governor and state senators are aware of the seriousness of the situation.
“By no means does anyone think we have dealt with this issue in an effective way,” said Towns.
