TWO-BILL PACKAGE CRAFTED TO PROTECT CONSUMERS FROM FALLOUT OF SUBPRIME MORTGAGE MELTDOWN

Measures Aim to Combat Foreclosure Scams, Dubious Rate-Baiting Tactics

(TRENTON) - Two legislative measures poised for introduction today would give consumers new levels of protection from foreclosure rescue scams and exploitative mortgage rate-setting practices that are on the rise in the wake of the meltdown in the nation's subprime mortgage market.

One bill sponsored by Assembly Majority Leader Bonnie Watson Coleman (D-Mercer) would better protect consumers who might be tempted to sign onto mortgages with tantalizingly low initial interest rates - "teaser rates" - that balloon to unaffordable levels in a few short years, forcing bankruptcies for borrowers.

A second bill sponsored by Assemblymen Gary Schaer (D-Passaic), Neil Cohen (D-Union) and John Burzichelli (D-Gloucester) would counteract "foreclosure rescue" scams that have been on the rise across the country as property foreclosures and mortgage delinquencies skyrocket in the wake of the unraveling subprime mortgage market.

"The subprime mortgage market has gone amok and too many consumers are finding themselves in a no-win situation," said Watson Coleman.  "Government needs to get fully engaged with this issue at all levels so the cherished value of homeownership in this country does not devolve into a nightmare of bad credit and bankruptcy for borrowers."

Schaer noted that further consumer safeguards are needed as subprime delinquencies have grown by 5.8 percentage points to 12.5 percent over the past two years.  As many as 130,000 homeowners a month nationally - the most in 30 years - are going into foreclosure.

"For the sake of people who invest in the mortgage market and consumers who borrow money to buy homes, more safeguards are needed to protect against predatory practices," said Schaer.

The Assembly Democratic bills would seek to protect people facing foreclosure proceedings and safeguard borrowers seeking future loans.

The Watson Coleman teaser rate bill has the following provisions:

• Creditors must verify and document the borrower's ability to repay the loan.
• For adjustable-rate, zero-rate, or teaser-rate mortgages, the reasonable ability to pay must be determined based on a fully indexed rate and a repayment schedule that achieves full amortization over the life of the loan.
• Creditors must establish escrow accounts to ensure the payment of taxes and insurance premiums for high-cost home loans.
• Prohibit the financing of points and fees in connection with a high-cost home loan.

The Schaer/Cohen/Burzichelli bill - the Foreclosure Rescue Fraud Prevention Act - has the following provisions:

• Require foreclosure consultants to post a bond with the state Division of Consumer Affairs prior to conducting any business in New Jersey.
• Provides contract rights for owners of a financially distressed residential property - contracts for foreclosure consulting services would need to be in writing with major disclosure and notice requirements in 14-point boldface type and the borrower would maintain the right to cancel the foreclosure consulting contract at any time until every contracted service has been performed.
• Prohibit foreclosure consultants from collecting fees prior to the completion of all agreed upon services, unless compensation for partial performance is expressly agreed upon in a contract.
• Imposes added protections for cases when an owner transfers property to a property purchaser, occupies the property, and retains an option to purchase the property back from the purchaser.

The bills are the first of several measures Assembly Democrats are crafting to protect borrowers and homeowners from fallout in the unraveling subprime lending market.  Cohen, who chairs the Assembly Financial Institutions and Insurance Committee, has held a hearing on the issue and is working on further legislative measures.

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