“The downturn in the economy has created new challenges for struggling homeowners who need help now more than ever. Current anti-foreclosure efforts have not been very effective, we need to do more and this legislation will help keep more New Yorkers in their homes during these challenging economic times,” said Klein.

Under the proposed legislation, a homeowner will receive 90 days notice upon a foreclosure action entered in court. If they choose to enter the foreclosure diversion program they must call the state banking department, schedule a session with an approved counselor, and attend the session. At that time the homeowner will work with a certified counselor who will file a financial plan 10 days before the settlement conference. If the bank accepts the plan then the homeowner does not have to attend the settlement conference and a certificate of understanding is filed with the court. If the bank does not accept the plan then the homeowner must appear at the settlement conference.

At the settlement conference, the bank and borrower can work out a temporary payment schedule which the homeowner must pay during a nine month abeyance period. During these nine months, the counselor and homeowner develop a more permanent agreement. If the homeowner defaults, the foreclosure will proceed.

If the homeowner does not apply for counseling then they will still be allowed to go to the settlement conference but they will not receive the nine month abeyance. The settlement conference will proceed as it normally does under the law.

“The foreclosure crisis is sweeping across New York City, threatening to eradicate working and middle class communities, particularly in parts of central Brooklyn and southeast Queens. We must respond forcefully by compelling banks to actively negotiate bad loans in order to save these neighborhoods,” said Assemblyman Hakeem Jeffries.

The current law provides only a vague description of outcome goals with no affordability guidelines, and outreach to struggling homeowners has been ineffective. Borrowers often receive difficult to understand legal documents outlining the nature of the program, and if they get as far as a settlement conference, they are ill prepared. In addition, there are no required steps prior to the conference as housing counseling is suggested but not mandatory. Similarly, lender accountability is not being enforced, so that lenders are not sending representatives with the authority to settle the case on the spot (as mandated by the legislation). As a result, the lender is unprepared (arriving without proper documents and authority to settle), the borrower has not accessed housing counseling, and the conference is unproductive, most often resulting in a judgment back to the negotiating table.  

Conversely, a model developed by ACORN currently in use in Philadelphia, PA has proven to be very successful, because most of the work happens before the conference even takes place. The conference goals are clear-cut and outreach has been robust. Lenders arrive ready to make deals because they do not want postponement - it means no decision - no money and no sale. Within the first three months of the program, over 80% of the loans reviewed were modified. In Philadelphia the program costs roughly two million dollars.  

The proposed program in New York State would cost roughly $7-8 million. Foreclosures are projected to reach 122,192 and home sales continue to decline. Currently there is $25 million which the legislature allocated to the Division of Housing and Community Renewal (DHCR) as a possible funding source. The funding is explicitly intended for counseling services for victims of the subprime mortgage crisis.