Buffalo has one of the state's worst rates of default and foreclosure on mortgage loans, and actions are needed not only to stem the tide but to correct the conditions that caused it, participants in an anti-predatory lending forum said Thursday.
Five panels of consumer advocates, government officials and industry representatives spent more than seven hours at the Frank E. Merriweather Jr. Library on Jefferson Avenue, reviewing abuses and problems in the mortgage industry.
They also discussed what steps have already been taken and batted around new ideas, such as cooperative foreclosure prevention projects. And they responded to questions, as the state's interagency HALT Task Force sought ideas to fight abuses and protect consumers.
"We want to partner with you in ending these and other abusive practices," said Jane Azia, director of non-depository institutions and consumer protection for the New York State Banking Department. "The solutions we develop together can have a broad impact."
Discussion centered on the subprime industry -- loans to borrowers with bad credit -- and on the rising losses and foreclosures that plague the nation and especially Buffalo. Nationwide, experts have predicted at least one in five subprime mortgages made in the last two years will go into foreclosure.
Locally, Azia noted, at the end of last year, nearly 14 percent of "subprime" loans to borrowers with bad credit were in default -- among the highest levels in the state. In all, she said, nearly 3,000 households in Western New York had entered foreclosure during the year.
More broadly, Western New York had the second-highest foreclosure rate for all loans among the state's largest metropolitan areas in the third quarter of last year, according to the Empire Justice Center in Rochester. And it was more than double the previous quarter.
Finally, aside from the Gulf Coast areas devastated by hurricanes, the Buffalo-Niagara Falls area in 2006 had the highest number of defaults on prime-quality loans in the first three months after the loans closed.
"This is of great concern to us, that loans that we expect to perform are not," said Holly Lindstrom, data analyst for the Western New York Law Center.
Azia and others said the desire of sophisticated investors for higher yields encouraged lenders to make "dubious" nontraditional loans "often with insufficient regard for the borrowers' ability to repay the loan." And the existence of the "secondary market" to buy the loans meant lenders just passed on the risk.
If that's not bad enough, Azia noted, the population flight locally only adds to Buffalo's excess and vacant housing, whose extremely low prices makes them subject to "flipping" schemes by out-of-town investors "looking for a quick profit."
>39,000 vacant homes
More than 20,000 homes in Buffalo and 39,000 homes in surrounding areas are vacant, giving Buffalo a 17 percent vacancy rate -- 10 times the average rate for the Northeast.
Mortgage fraud has also increased sharply, and troubled borrowers are being victimized by scams that offer to save their homes but really steal the deed.
For their part, officials from state and federal agencies cited the steps they are taking, including prosecutions, other enforcement actions and fines, fair lending and civil rights investigations, new lending guidance and regulations, new laws to license individual mortgage loan officers and protect consumers from "foreclosure rescue" scams, and participation in a national broker registration.
But former Rep. John LaFalce, who moderated the industry panel and peppered speakers with pointed questions throughout the day, said that's not enough. He questioned the banking department's consumer protection efforts, and asked why the New York-based agency has no office in Buffalo.
"We need it. There's too much going on here in Buffalo not to have an office here," he said.
He called for mass class-action suits or even a lawsuit under the federal racketeering law against lenders, loan servicers, investment banks and the investors who buy the mortgages. He said that's the only way to force them to modify the loans so consumers don't lose homes.
"I don't have any desire to send anybody to jail," he said. "I have a desire to use a big stick."
Mortgage lenders and brokers defended their efforts to expand homeownership, but acknowledged the problems. They say they're already taking steps but disagreed over how far to go.
"The market has already begun to correct by eliminating programs, changing guidelines and tightening underwriting," said Greg Krauza, president of the New York Association of Mortgage Brokers. "We certainly do not need to regress with unreasonable restrictions or government regulation that would do more harm to the market."
The meeting by the interagency HALT Task Force was the second such summit in the state since Gov. Eliot Spitzer appointed the group in May. The event was co-hosted by the Western New York Law Center and the city's Anti-Flipping Task Force.
The state task force is chaired by New York Superintendent of Banking Richard H. Neiman, and includes representatives from seven agencies. Azia filled in for Neiman Thursday after he was unable to get a flight from New York City to Buffalo because of bad weather.
Consumer advocates relayed tales of clients being duped into inappropriate loans, especially adjustable-rate mortgages with low "teaser" rates that would jump after the first few years. Those loans were underwritten on the low initial rate, not the higher permanent cost.
Documents and income also were sometimes falsified. And many loans were written for more than the home was worth.
"So not only do you get the terrible mortgage, but you get trapped," said Legal Aid Bureau attorney Athena McCrory.
The advocates also complained of uncooperative lenders, who tout "loss mitigation" programs but make it difficult to qualify.
"Servicers have no incentive to work with the borrower," said Carol Brent, attorney at Legal Services for the Elderly, Disabled and Disadvantaged of Western New York.