Real LI

On Labor Day, many provisions in the state’s new subprime lending reform law kicked in, but some protections apply to homeowners in general.

In lenders' letters notifying nonsubprime borrowers that foreclosure proceedings will be started, lenders must advise homeowners to consult an attorney or legal aid. The notice must also say that nonprofits and government agencies are available to discuss options and negotiate with lenders. It must say that information is available from the New York State Banking Department. In addition, the letter must warn against foreclosure prevention scams.

In comparison, subprime borrowers must get preforeclosure notices at least 90 days before the lenders begin to take action. The letters must tell them to consider going to housing counseling and list at least five nonprofit counselors in the borrowers’ region; those counselors must be the list of nonprofits approved by the federal Department of Housing and Urban Development or the New York State Division of Housing and Community Renewal.

The law also attempts to deter foreclosure prevention scams. Distressed property consultants must have written contracts before performing any services for the homeowners and cannot charge or accept fees before services are completed. Also, such consultants cannot accept power of attorney from homeowners, except in limited circumstances. Homeowners have the right to cancel the consulting contracts within five business of both parties agreeing to the contract.

Several restrictions have also been placed on subprime loans. Lenders will no longer be able to charge prepayment penalties and offer teaser rates of less than six months. “Loan flipping” will be illegal – that’s when loans are refinanced without any tangible benefit to the borrower. Also, lenders will have to put taxes and insurance in escrow.

State banking superintendent Richard Neiman recently sent a letter to mortgage bankers and brokers, mortgage-related industry groups and loan servicers across the state.