Superintendent of Banks, Richard H. Neiman, Addresses the Rural Housing Coalition Conference on the State's Commitment to Upstate Areas Impacted by Foreclosure and Expansion of Economic Inclusion Activities
October 30, 2008
Good evening and thank you for those kind words.
I’m glad to be back in Buffalo. This city was one of my first stops when I began as Superintendent last year- I had a positive meeting with Mayor Brown, who participated in our Buffalo conference on halting abusive lending transactions. Then in May of this year, I was back for another foreclosure prevention event that we call “Operation Protect Your Home.” I’ll be sharing more details on that initiative with you later in my remarks. But I wanted to begin by saying how good it is to be here again- and that I’m committed to having the Banking Department serve as a resource for the whole state.
And I’m particularly pleased to have the opportunity to share the Department’s foreclosure prevention and economic inclusion initiatives with you. Consumer protection and economic empowerment are two of the core priorities that I set for the agency, and I would like to focus my remarks today on those key areas.
1. Foreclosure preventionScope of problem upstate
New York has been a leader in consumer protection and in preventing unnecessary foreclosures. I have many of you in this room to thank for that as well- you are great partners with us and leaders in your communities. You know firsthand that the foreclosure crisis is not just a New York City or downstate problem- there are pockets across the state being disproportionately impacted.
While Brooklyn, Queens and Long Island experienced declining foreclosure rates during the third quarter of 2008 compared to the third quarter of last year, upstate counties saw substantial increases. Monroe saw foreclosures rise 55%. And Albany, Erie, Dutchess, Onondaga, and Orange all skyrocketed- with increases in the 200-400% range.
Within those affected upstate counties, a number of areas continue to be among the top 100 hotspots for foreclosures nationwide. In addition to New York City and Long Island, RealtyTrac data for the third quarter of 2008 includes the following five metropolitan statistical areas in upstate New York on that list:
- Poughkeepsie [Dutchess County]
- Buffalo [Erie County]
- Rochester [Monroe County]
- Syracuse [Onondaga County]
Even though New York is not one of the states hardest hit, ranking 37th among the fifty states, the inclusion of these upstate cities and surrounding areas on a national list should be a final wake-up call. No one is immune from the effects of the current financial turmoil - it’s not “someone else’s problem.” We need to continue investing serious energy and resources in fighting this foreclosure crisis across the state.
Overview of state response
And we have been taking comprehensive action at the state level to address this housing crisis. Our continuum approach to this complex problem covers a range of issues- from helping existing borrowers in trouble, to helping ensure that a crisis like this never happens again.
I’d like to highlight four areas in which we’ve taken action, before turning to our related economic inclusion efforts.
- Outreach and Loan Modifications
The centerpiece of our current outreach efforts has been a campaign that we call Operation Protect Your Home. These are unique, day-long events where homeowners meet face-to-face with servicers to arrange modifications or other workouts. Through this initiative, we’ve contacted approximately 36,000 New York borrowers to give them the opportunity to participate and hopefully prevent foreclosure.
While this individual intervention remains critical, we also need a more systemic approach to modifications. The FDIC’s management of at-risk loans in the IndyMac portfolio shows that a more streamlined method can work. I applaud the FDIC for taking a creative approach to loss mitigation and encourage the Treasury Department to likewise use its new authority to facilitate systemic modifications, through loan guarantees and credit enhancements.
The $8 billion multistate agreement with Countrywide is another mass modification program, and New York has joined with a host of other states in calling on servicers to follow these examples. The State Foreclosure Prevention Working Group just issued a letter to that effect, and the Group’s latest report illustrates the pressing need. The report shows that industry loss mitigation efforts are not keeping pace with increasing delinquencies. The number of at-risk borrowers who are not on track for any kind of workout has risen- from 7 out of 10, up to 8 out of 10 over the first half of this year.
We have also taken steps to provide relief through legislation. Governor Paterson’s mortgage reform package that passed this summer is the most comprehensive in the country, and could serve as model for a national standard. Thank you for your feedback throughout that legislative process- you made this a better bill.
The legislation contains important provisions such as a pre-foreclosure notice and a mandatory settlement conference. At these settlement conferences, the court many appoint attorneys for borrowers who cannot afford them.
And to prevent the kind of undisciplined lending that contributed to this problem in the first place, the legislation includes new underwriting standards for subprime loans, such as documenting the consumer’s ability to pay. It really doesn’t get more basic, and yet these fundamentals were often ignored in the heat of the housing boom.
Progressive states like New York have also taken a lead role in consumer protection through enforcement actions. The headline anti-predatory lending settlements with Ameriquest and Household were state actions that sounded an early alarm on the subprime problem.
And we’ve also heightened enforcement on the front end, by raising the standards for those entering the mortgage loan origination business. In cooperation with the Conference of State Bank Supervisors, the Department has helped develop a nationwide system for registering all mortgage loan originators- each individual employee, not simply the firms where they are employed. Background checks, fingerprints, and a continuing education requirement are all part of the new system, which will help curb fraud by making it harder for bad actors to evade enforcement simply by reopening shop across state lines.
The state is also putting the fines that it has recouped from enforcement actions to good use. The Banking Department has just finished allocating $2 million in grants for consumer counseling from prior fines. This is on top of the state’s substantial commitment of $25 million in grants to housing counselors and legal services providers through the state budget. We want to ensure that you have the capacity to meet the increased consumer need during these challenging economic times.
As important as each of these actions areas are to helping borrowers at-risk, we need to do even more to ensure that a housing crisis like this never happens again. I believe that reduced access to traditional banking services has contributed to foreclosure crisis in many of the communities hardest hit. And that has further motivated me to prioritize our economic development and economic inclusion efforts.
2. Economic inclusion
We are addressing this lack of access in two main ways, by creating incentives for banks to open branches in underserved areas upstate and by involving community stakeholders in developing local solutions that work.
Increasing access is about much more than bank accounts- it is about increasing financial stability for New York consumers. Fringe services charge high fees that erode earnings, and establishing traditional credit histories makes loans less expensive. Plus, bank accounts encourage savings and other positive behaviors. We need to expand access to physical bank branches, but just as importantly we need the right mix of products and services to meet diverse needs.
Economic Security Cabinet
In support of this goal of expanding innovative banking choices, I’m pleased to serve as a member on Governor Paterson’s Economic Security Cabinet which addresses a broad range of financial issues.
One early success I’m happy to report- M&T Bank is waiving ATM-surcharge fees for public benefits recipients who use electronic benefits transfer (EBT) cards. The waiver of this fee will make a real difference in the budgets of many lower-income New Yorkers, especially upstate where M&T has numerous locations.
We are also interested in facilitating financial education and other services for EITC filers at volunteer income tax assistance sites, and look to you for creative suggestions.
Another way that we’re moving forward is through our participation in the Alliance for Economic Inclusion, the FDIC’s program to expand access to affordable financial services. The AEI pilot in Rochester launched earlier this year, and is the first city in New York to be chosen for the program. I had heard positive feedback on the AEI method from former Superintendent Diana Taylor, and suggested to our counterparts at the FDIC that upstate New York would be the right location for a new initiative.
The Department’s partnership with the FDIC in this economic inclusion effort is another strong example of the results that can be achieved by creative state-federal cooperation through the dual banking system. I expect that there will be results from the Rochester pilot that could be replicated in smaller communities across the state. The AEI pilot brings together community leaders, industry, and government in designing solutions that work and developing local infrastructure for sustainable results.
Focal points for AEI pilot are still under development, but are likely to include:
- expanding the Banking Development District (BDD) Program upstate- through this program, the New York State and New York City Comptrollers place deposits at below-market interest rates at approved branches in locations determined to be underserved by the Banking Department;
- developing “second-chance” deposit accounts for those who have had prior negative account histories; and,
- promoting responsible small dollar loans, as alternatives to high-cost credit cards or payday-style lending.
As I said at the outset, we’re taking a continuum approach to deal with a broad range of economic challenges. There is no one solution to deal with the fallout of the housing crisis and broader turmoil in the financial markets- and that fallout has implications for everyone, whether they have a mortgage or not.
So even as we deal with current challenges, we should remain optimistic about the future. And the kind of partnerships that can emerge from a conference like this gives solid reason to be hopeful.
I look forward to continuing to work with you, through the Banking Department initiatives I’ve described, as well as your new ideas. I encourage you to stay in contact, to let us know what your specific needs are upstate and how we can best be of service.
Thank you again for the opportunity to speak with you this evening.