Op-Ed: How to Fix the Housing Crisis
Op-Ed Published in the Albany Times Union
By Eric T. Schneiderman
The foreclosure numbers for May are out, and the picture for New York is grim. Foreclosure filings are up almost 50 percent compared to May of 2011.
The economic cost of foreclosures is staggering. On average, each foreclosure carries around $245,000 in direct and indirect costs.
But it's not just a matter of numbers. People are uprooted, children are pulled out of school, jobs are lost and lives are destroyed.
The causes of the crisis are complex, but the big picture is clear. Years of reckless deregulation set the stage for irresponsible and sometimes illegal behavior, in the mortgage market and on Wall Street. Shoddy lending practices, and opaque financial engineering to resell shaky mortgage debt to investors, drove housing prices upward during the bubble years, far past the point when the market should have started to cool. When the bubble burst, millions of jobs disappeared, more than $7 trillion in home equity evaporated, and the U.S. economy sank in to the longest and deepest recession in 70 years.
The foreclosure crisis is a lingering effect of this man-made catastrophe. To help New York homeowners get back on their feet, my office has a multipronged strategy.
Our goals are: to protect homeowners' legal rights, speed as much relief as possible to those who are struggling now, hold accountable those who caused the housing crisis, and get the facts out about what happened so it never happens again.
The first step toward these goals was negotiating the national mortgage settlement that was concluded in February. In order to resolve numerous violations of state and federal law related to mortgage servicing and foreclosure practices, the five largest mortgage servicing banks agreed to provide billions of dollars worth of relief to homeowners in the form of lower interest rates, and mortgage principal reduction, and billions more to states to assist homeowners. The settlement tightens rules for mortgage servicing and foreclosures — and maintains the right to bring legal action over misconduct in the mortgage market that has not yet been fully investigated, or where investigations are ongoing.
New York received the most money per distressed homeowner of any state — more than $130 million.
Two weeks ago, we announced an expedited process to distribute $60 million of those funds to legal services providers and housing counselors to directly help distressed homeowners across the state.
New York law provides important protections for homeowners facing foreclosure, including the right to a 90-day pre-foreclosure notice, and the right to a settlement conference. But, the process is complicated, so legal representation is critical to ensure that homeowners' legal rights — and homes — are protected.
Housing counselors have a proven record of preventing foreclosures. A Department of Housing and Urban Development report found that with a counselor's help, nearly 70 percent of those counseled saved their home, and 56 percent became current on their mortgages.
We are also taking legislative action to address this crisis. Last week, I introduced a bill that would make it a crime to knowingly file false documents in a foreclosure proceeding, or to recklessly tolerate such fraud as a supervisor. The threat of jail time will be a strong deterrent against fraud by mortgage services.
The Assembly overwhelming passed this proposed legislation last week. We have 34 sponsors for the bill in the Senate and I remain hopeful that when the Senate returns, they will act to treat foreclosure fraud as the serious crime that it is so we can deter future abuse and spare untold numbers of families the trauma of wrongful foreclosure.
The housing crisis didn't start overnight, and it won't end overnight either. But together with our partners in the Legislature, legal services and housing communities, and the federal government, we will hold those responsible for the mortgage meltdown accountable and unleash the truth about what happened so we can ensure that it never happens again.