COHEN/SCHAER/SPENCER BILL GRANTING SUBPOENA POWER TO INVESTIGATE FORECLOSURE CONSULTANTS ADVANCES

Measure Would Aid Assembly Financial Institutions and Insurance Committee in Thorough Examination of Largely Unregulated Industry

(TRENTON) - An Assembly panel today released legislation Assembly members Neil M. Cohen, Gary S. Schaer, and L. Grace Spencer sponsored to grant the Assembly Financial Institutions and Insurance Committee subpoena powers to investigate the largely unregulated and potentially exploitative foreclosure consultant industry that has cropped up in the wake of the nation's subprime mortgage lending meltdown.

"We will need broad powers to get to the bottom of what's happening in New Jersey's foreclosure consultant industry," said Cohen (D-Union), the panel's chairman.  "It's very likely that shysters and scam artists are bilking New Jersey homeowners on the brink of foreclosure out of their hard-earned equity."

The legislation (AR-92) would reconstitute the Assembly Financial Institutions and Insurance Committee as a special investigative committee to aid in the thorough investigation of New Jersey's foreclosure consultant industry.

The measure would grant the panel power to subpoena witnesses and documents in conjunction with an investigation into the business practices of foreclosure consultants, the impact these practices have had on foreclosure rates, the ability of residents who retain these consultants to preserve the equity in their homes, and to what extent - if any - foreclosure consultants have acted improperly or unethically in the state.

According to the sponsors, the committee would need subpoena powers to properly investigate a largely unregulated industry that makes its money by preying on the fragile emotional and financial states of residents who are overextended on their borrowing and facing foreclosure on their homes.  The legislators are concerned that this emerging industry may be acting as a potential haven for organized crime and money laundering schemes.

"To properly protect New Jersey's imperiled homeowners, the activities of foreclosure consultants must be fully disclosed," said Schaer (D-Passaic), an investment professional.  "Only then will we be able to distinguish between honest practitioners and predatory criminals, and put a stop to the unconscionable and illegal activities being perpetrated throughout our state."

Mortgage foreclosure consultants are individuals or firms that offer financially distressed homeowners "foreclosure rescue services" - essentially offering to absorb an individual's current mortgage, forestalling a foreclosure and allowing the individual to remain in his or her home by making reduced monthly payments to the foreclosure consultant.

In actual practice, the sponsors said at-risk homeowners seeking the services of mortgage foreclosure consultants are falling victim to the consultant's manipulation of confusing mortgage laws and legal documents.

The consultant convinces the homeowner to transfer ownership of his or her home to a straw purchaser, who collects a flat fee from a questionable third-party investor.  The homeowner is then required to make payments to the investor at a monthly rate that is often two to three times higher than the initial mortgage payments just to continue living in his or her home.  When the homeowner can no longer keep up the payments, he or she is evicted and left without recourse or equity, having previously signed homeownership over to the straw purchaser.  The opportunities for abuse are further compounded by the current lack of government oversight and regulation.

"Foreclosure consultants are taking advantage of at-risk homeowners, profiting off their emotional and financial vulnerability," said Spencer (D-Essex), vice-chairwoman of the committee.  "Homeowners think they're purchasing piece of mind, but all they're really paying for is a one-way ticket to homelessness."

An October 2007 U.S. Government Accountability Office (GAO) report found that New Jersey experienced a more than 50 percent increase in residential mortgage foreclosure rates over 2005 and 2006.  The GAO further found that these defaults and foreclosures were having a significant economic impact on homeowners, lenders, and municipalities.

Additionally, due to numerous consumer complaints about the practices of foreclosure consultants, 11 states have enacted statutes to specifically regulate these practices, with Massachusetts banning foreclosure consultants entirely.

"Following the subprime lending market meltdown, the American Dream has transformed into the American Nightmare for many homeowners," said Cohen.  "We have a responsibility to ensure that these consultants are not preying on financially imperiled New Jersey homeowners."

The Assembly Financial Institutions and Insurance Committee unanimously released the measure.  It now heads to the Assembly Speaker, who decides if and when to post it for a floor vote.

--30--