Posts filed under ‘Advocacy’

Assembly Passes Onerous Abandoned Property Bill

The Assembly passed a package of bills yesterday that would make New York’s cumbersome foreclosure process even more inefficient and costly and most likely exacerbate some of the very problems it is seeking to address.

Most importantly, the Assembly passed A6932a/S4781a, introduced at the request of the Attorney General, “the New York State Abandoned Property Neighborhood Relief act of 2016.”  I’ve already talked about this bill extensively.  It makes lienholders responsible for abandoned property on which they have not foreclosed; however doesn’t do enough to expedite foreclosures on these properties or clarify precisely how much maintenance credit unions and banks will be responsible for. 

By the way, municipalities often have first lien priority on abandoned property because of unpaid tax bills.  This bill is a backdoor means of shifting responsibilities to banks and credit unions that are ultimately the responsibility of localities.

Another bill, A1298/S5242 wouldn’t streamline New York’s requirement for judicially supervised settlement conferences, a proposal that would be in everyone’s best interest.  Instead, it expands the explicit scope on these get-togethers by explaining that resolutions can include, but are not limited to, loan  modifications, “short sales” and “deeds in lieu of foreclosure.”  This goes into the “wow, why didn’t I think of that” category.  Lenders have already considered and used these alternatives.  There is no need to put this language into statute unless the Legislature believes it knows more about loss mitigation than the lender losing money on a delinquent mortgage.  A second possibility may be that it is seeking to give judges greater authority to force lenders to accept “good faith” resolutions.

Finally, if the Legislature is going to propose all these new obligations on lenders, one would hope that it isn’t also inclined to make it even more difficult to foreclose.  But, alas A247 would do just that.  This bill makes it easier for defendant’s to raise a defense that a foreclosing lender lacks standing.

Taken as a whole, this package of reforms will increase legal protections for delinquent homeowners, make lienholders responsible for homes they don’t own and make foreclosing even more litigious and time consuming.  Lost in all of this is the simple fact that delinquent homeowners are in homes they can no longer afford.  Fortunately, none of these bills have been passed by the Senate yet.  We will have to see if cooler heads prevail in the closing weeks of the session.   

 

May 25, 2016 at 9:00 am Leave a comment

Zombie Property Bill Advances

Momentum appears to be growing for zombie property legislation. Legislation has advanced to the Assembly floor (A.6932A/ S.4781A) that would make mortgage lenders responsible for maintaining “vacant and abandoned” property on which they have not yet foreclosed.  It would also make lenders responsible for property they are in the process of foreclosing on because the borrower has failed to maintain the property.

The bottom line is that financial institutions would be on the hook for maintaining property even if they haven’t completed or even started New York’s byzantine foreclosure process, an obstacle course that takes several years to complete.

This is a lousy idea for several reasons. For instance, it effectively denies the lender the right to determine whether or not vacant and abandoned property is worth foreclosing.  It also creates even more foreclosure complexities and opens the door for lenders to indirectly subsidize maintenance projects for which localities should be responsible.

The sponsors deserve credit for proposing to streamline foreclosures for zombie property. However, if legislators feel the need to go forward, the legislation should be amended to mitigate its shortcomings. Most importantly, the legislation should clearly stipulate that “vacant and abandoned” property is not subject to foreclosure defenses so that lenders can at least quickly obtain title to property for which they are responsible.  Currently, the legislation is needlessly ambiguous on this point.  It creates a streamlined foreclosure for vacant property, but also provides that this fast track system “shall not abrogate any rights or duties pursuant to this article.”  Why not?  The property is abandoned.

Furthermore, the fast track won’t apply in instances where the defendant has responded to the foreclosure. This makes sense, except the legislation should make clear that if a homeowner mounts a foreclosure defense only to subsequently abandon the property, lenders can still fast track the foreclosure.

There also needs to be responsible parameters describing what proper maintenance entails. Anyone involved in mortgage lending has heard stories of foreclosed property being gutted by the delinquent homeowner.  Should a foreclosure come with a huge price tag for repairing these properties? I don’t think so.

Happy Days For MBL Lenders

NCUA sent out a notice yesterday reminding credit unions that they no longer have to get a personal guarantee when making Member Business Loans. This change is the first step in implementing amendments to give credit unions greater flexibility when making MBL loans.  Remember NCUA still considers personal guarantees a good idea, so you should have a policy explaining the circumstances under which they will not be required by your credit union.

https://www.ncua.gov/newsroom/Pages/personal-guarantee-waivers.aspx

 

 

May 17, 2016 at 9:46 am Leave a comment

Key NYS Legislation Starts to Move

Albany is getting down to its post-budget business, especially now that the seat vacated by former Senate Majority Leader Dean Skelos has been won by Democrat Todd Kaminsky.  This week’s Senate Banks Committee agenda includes legislation important to credit unions.

Most importantly, legislation sponsored by Senator Savino (S.7183) would clarify when a mortgage is considered consummated under New York State Law.  Under the TRID regulations, closing disclosures must be received by a homebuyer at least three business days before a mortgage loan is consummated.  Currently, there is no statutory definition of consummation and there is case law that suggests that consummation actually occurs at the time that the credit union or bank sends a commitment letter to a mortgage applicant.  The bill clarifies that for purpose of compliance with federal law, consummation occurs when a mortgage applicant signs a promissory note and mortgage.  Here is a previous blog I’ve done on the topic.

A second bill on the Committee’s agenda, S.7434, mandates the creation of a state-wide data base of vacant foreclosed property.  Under this bill, when a bank or credit union obtains a judgement of foreclosure on residential property that is or has become vacant or has been abandoned, the mortgagee is required to provide notice of the vacancy to the Department of Financial Services within ten days.  The Attorney General (AG) and municipalities would have access to the database and the hope is that it will make it easier to hold mortgagees responsible for maintaining the property.  The AG will have the authority to fine institutions that violate this section.  Unlike a proposal previously put forward by the Attorney General, this bill does not seek to impose responsibilities on financial institutions for vacated property on which they have not obtained a judgement of foreclosure.

CFPB Unveils Class Action Protection Proposal

At a New Mexico field hearing yesterday, the CFPB formally unveiled a proposal that would prohibit banks and credit unions from including arbitration clauses in account agreements that prohibit consumers from joining class action lawsuits.  The CFPB is taking this step pursuant to the Dodd-Frank Act which mandated that it study the use pre-dispute arbitration clauses and make regulatory changes where appropriate.

This is a big deal for many industries that have turned to arbitration clauses as a means of controlling liability risks.  It is not clear to me how many credit unions use arbitration clauses, but at the hearing yesterday it was suggested that the use is growing in the industry, particularly by larger credit unions.  If you would like to know my personal opinion of the CFPB’s proposal, here is a blog I did on arbitration clauses earlier this week for CU Insight (how’s that for a shameless plug, I figure if I take the time to write this stuff, I might as well encourage people to read it).

Bankruptcy Cliffhanger

Here is a question for you to ponder over the weekend.  Can a bankruptcy court overseeing a Chapter 13 reorganization vest legal title in residential property in a bank or credit union over the objection of a bank or credit union holding the mortgage on which it has not yet foreclosed?  Or, put another way, you know that abandoned piece of property that simply isn’t worth foreclosing?  Can you be made to take legal title?  I’ll be providing the answer to this question next week.  I am sure you can’t wait, but enjoy your weekend nevertheless.

 

May 6, 2016 at 8:58 am Leave a comment

Could the Industry be Merged Out of Existence?

On Friday, NCUA’s Office of Small Credit Union Initiatives released a series of video modules dedicated to “merging from the merging credit union’s perspective.”  It’s like the flight attendant reminding passengers that their cushion can be used as a flotation device as they are flying over the Atlantic Ocean.

These videos would have been more appropriately titled “you got to know when to hold ‘em, know when to fold ‘em, know when to walk away, and know when to run.” If you think I’m exaggerating, watch the videos for yourself. 

The recurring themes are (1) there is no shame in merging; (2) merging when your credit union is relatively strong gives you more leverage than merging when you are weak; (3) merging can preserve and increase membership value; and (4) contracts can be negotiated to protect employees and services.  And did I mention that there is no shame in merging, especially for those of you whose board meetings are taking on the look of the activity committee of a Boca retirement village?  Module 2 ends with this uplifting quote from the CEO of a $900 million credit union:  “Most small credit unions are too proud to merge.  They see merger as a failure rather than a benefit to members. So they will only merge at the inflection point of a CEO retirement or financial stress.”

What bothers me about the videos isn’t their content:  NCUA’s ever so subtle nudge is a reflection of reality.  There are approximately 275 mergers a year.  Mature industries consolidate, particularly in the financial sector.  Besides, the trend is by no means unique to the credit union industry.  Just ask First Niagara.  People want cheap, effective products and services and the only way of providing this grab bag is to hold down costs and increase economies of scale.  And, let’s be honest, a credit union with a shrinking membership and no strategic plan for growing the base isn’t helping anyone by living off its excess capital.

What concerns me about the videos is that unlike the commercial banking sector, the credit union industry could literally merge itself out of existence.  As of December, there were 481 credit unions with $500 million or more in assets and a little more than 200 of those have assets of $1 billion or more.  From a purely economic standpoint, many credit unions with less than $500 million should consider merging.  But, the credit union industry is unique.  While it’s indisputable that the bigger credit unions can more cost effectively provide services and that many of our largest credit unions use their increased size to give people a better deal than they would get from banks, it’s doubtful that the industries not-for-profit cooperative model can survive politically as if the industry is comprised almost exclusively of billion dollar institutions.  It’s ultimately the small guys – even the endangered home-based CUs – that keep the industry viable.

The industry is unique in that it needs a healthy mix of asset sizes.  If a credit union has no chance to grow then, of course, merging makes sense and you should take a look at these videos.  But, I’m afraid that there are too many credit unions that are willing to give up without a fight.

For instance, there is a great generation of community conscience, tech savvy millennials: why are they in such short supply on credit union boards?  States like New York have made important changes to help credit unions grow by expanding their fields of membership: why have so few credit unions taken advantage of these changes?   Credit unions exemplify the cooperative model:  why are they so reluctant to form CUSOs to combine back office services?  With so many aging boards, why are there credit unions without succession plans? With so many Americans looking to make the most of their money, why are there credit unions that refuse low income status even though it would help them grow and help their members?

NCUA’s right.  There is no shame in merging, but there is shame in going down without a fight.   

May 2, 2016 at 8:49 am Leave a comment

Uber Model Alive and Well after Settlement

Late last week, Uber announced it had settled two class action lawsuits brought by drivers claiming, among other things, that the ride sharing service was violating the labor law by classifying drivers as independent contractors.  For those of you with either a direct or indirect stake in the taxi industry through the financing of medallions, the settlement of these lawsuits is another blow.  Here’s why.

The Uber model is based fundamentally on the assumption that the company is nothing more or less than the provider of an App that enables individuals in need of a ride with those willing to provide one.  In Uber’s view of the world, ride sharing allows the mom on the way to the store to make a few extra dollars by taking Sally down the street along for the ride.  Under this best case scenario, our mom is an independent contractor picking and choosing what rides to take as she makes her way through her busy day.

To critics of Uber and other ride sharing services, the mom is not so much an independent contractor as a poorly paid employee.  For instance, under Uber’s model drivers who consistently turn down rides can be dropped from the service and each ride comes with a suggested price and gratuity. 

If the critics are correct, the Uber model is illegal and the traditional taxi medallion model is alive and well.  This is why the settlement is such a big deal.  Uber agreed to pay drivers up to $100 million and end its practice of automatically removing drivers who refuse too many rides.  At the same time, the drivers will continue to be classified as independent contractors in Massachusetts and California. 

Uber is by no means out of the woods.  Similar lawsuits are still pending.  And just last week California’s Commissioner of Labor ruled that an Uber driver was an employee rather than an independent contractor.  But this ruling is being appeal and is not binding on anyone beyond the employee involved. 

While the settlement of the Massachusetts and California cases leaves the independent contractor issue undecided, in my ever so humble opinion, anyone looking for the courts to provide a silver bullet, at least in the near future, when it comes to regulation of ride sharing businesses is likely to be disappointed.  For those of you who feel that the system should be better regulated in order to put medallion taxi and ridesharing service on an equal footing, the places to look for relief are State legislatures.

April 25, 2016 at 8:29 am Leave a comment

A Matter of Principal. . .Reduction?

I’m back blogging this morning after attending the State Governmental Affairs Conference all week.  Kudos to those of you who attended.  I understand why most of you are too sane to want to do this type of thing for a living, but a few of your stories to well-place legislators and staff go a long way toward getting things done.  Ok, no more Mr. Nice Guy.

One of the areas of unfinished business is housing policy reform.  An article that came out earlier this week in the Housing Wire reports that New York Attorney General Eric Schneiderman wrote a letter to the Federal Housing Finance Administration urging it to adopt mortgage principal reduction as a policy.  According to Schneiderman, in 2013 alone there were 60,000 homeowners in New York who were delinquent in mortgages controlled by Fannie Mae and Freddie Mac.  He goes on to argue that “there is significant evidence that homeowners who are seriously delinquent on their mortgages are most likely to avoid foreclosure and remain in their homes when reduction of principal balance is part of the loan modification offer. . .while virtually all of the large, commercial single family lenders now include principal reduction in their foreclosure mitigation options,” Fannie and Freddie do not. 

First, I would love to know how much an academic researcher got paid for figuring out that people who get a reduction in their mortgage principal are more likely to be able to afford their house.  Next thing you know, we will have conclusive proof that the sun rises in the East and sets in the West.  Secondly, having just watched The Big Short, calls for principal reduction have a certain facial appeal.  You wouldn’t know it from watching the movie, but Fannie and Freddie were willing participants and contributors to the securitization frenzy that indirectly led to the Great Recession.  Surely, giving a little back is the “right thing to do.”

But then, let’s get back to reality.  First, Fannie and Freddie are bankrupt entities and like any trustee administering a bankrupt estate, the FHFA has a fiduciary obligation to maximize its value.  Furthermore, as my Mother taught me growing up, two wrongs don’t make a right.  Should policy makers do more to reign in the big banks?  Absolutely.  But, for the life of me I don’t understand why taxpayer supported entities should be on the hook for bailing out the bad financial decisions of other taxpayers. 

I believe that if we don’t learn from our mistakes, we are bound to repeat them.  The American public wasn’t a victim of excessive real estate zeal so much as a willing accomplice.  I, for one, don’t want to see taxpayer supported institutions, which shouldn’t even exist at this point, bail out one set of taxpayers at the expense of others who were able to pay their bills.  Foreclosures are a tragedy, but they shouldn’t be avoided at all costs.

http://www.housingwire.com/articles/36747-new-york-attorney-general-pushes-fhfa-for-principal-reduction

 

 

April 14, 2016 at 7:45 am 1 comment

As Poverty Becomes More Concentrated Can CUs Do More To Help?

A disturbing report released by the Brookings Institute yesterday demonstrates why we still need  credit unions.

While it should surprise no one that poverty has increased over the last decade, if the Brooking’s research is correct, it is rapidly concentrating in small metropolitan and suburban areas.

Notwithstanding the pathologies that this kind of concentration produces, it concomitantly makes it easier for financial institutions, including credit unions, to bypass these areas and for politicians to treat poverty as somebody else’s problem.

According to the Brookings Report “By 2010-14, almost 14 million people lived in neighborhoods with poverty rates of 40 percent or more—more than twice as many as in 2000. Of those residents, 6.3 million were poor. Put differently, 13.5 percent of the nation’s poor population faced the double burden of being poor in a very poor place—an increase of 3.0 percentage points over the late 2000s, and 4.4 percentage points higher than in 2000.”

This trend is manifesting itself right here in New York and not necessarily the places you would think of first. For example, the number of people classified as poor in the Albany-Schenectady-Troy area has grown from just under 72,000 people in poverty in 2000. 44% of this population lived in census tracts where at least 20% of the population was poor. By 2014 that number of poor had jumped to over 95,000 and 49% were living in census tracts where 20% of the population was poor.  Similar trends can be spotted in Syracuse, Rochester and the Buffalo-Niagara Falls area.

In other words, we are not only seeing a sharp increase in poverty, which you would expect given the Great Recession, but poverty is being walled off in small and medium size communities that lack the resources to effectively deal with its manifestations.  While we can argue about the reasons for this trend, it’s indisputable that this type of concentration harms upward mobility.  It’s going to be harder for the kid living in these areas to get educated or start a successful business. (I would love Brookings to follow-up this report by correlating poverty concentration with access to mainstream financial services).  This is where credit unions come in.

As not-for profits dedicated in part to helping people of modest means, credit unions are uniquely positioned to help these areas. The law already permits credit unions that can serve them to qualify as low-income credit unions.  In return for these investments, they are given greater flexibility such as the right to take in secondary capital. I have said it before and I will say it again: Every credit union that qualifies as a low-income credit union should take the designation.

NCUA has taken an important first step in its FOM proposal, but ultimately Congress needs to sanction the use of technology to help both credit unions and banks cost effectively serve poorer areas. The internet can serve poor neighborhoods more effectively than a brick-and-mortar branch, but existing legal constraints limit the concept of a credit union’s service area.

Furthermore, legislators on both the state and federal level need to be reminded that catering to the banking industry often comes at the price of limiting financial services in poor communities. The American Bankers Association has led the charge against charter expansions into underserved areas. On the state level New York continues to deny access to credit unions wishing to invest in Banking Development Districts, even though these localities would certainly welcome the option of working with credit unions.  In addition, a simple change to NY law would make it easier for state chartered credit unions to qualify as low income.

But even without these changes every credit union already has a legal and ethical responsibility to ask itself what it is doing to help people of modest means access banking services? If your credit union can’t answer that question then it isn’t living up to its end of the not-for-profit bargain.

(http://www.brookings.edu/research/reports2/2016/03/31-concentrated-poverty-recession-kneebone-holmes)

 

March 31, 2016 at 10:13 am Leave a comment

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Authored By:

Henry Meier, Esq., Deputy General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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