COHEN ASKS ATTORNEY GENERAL FOR MORATORIUM ON SUBPRIME MORTGAGE FORECLOSURES

Request Made to Keep Residents in Homes, Stave off Economic Repercussions

(ROSELLE) - Assembly Deputy Speaker Neil M. Cohen today called for a state-imposed moratorium on subprime mortgage loan foreclosures, pending an investigation into the burgeoning problems in the subprime lending market and its effects on New Jersey homeowners.

"The nation's subprime mortgage loan market is experiencing a total and catastrophic meltdown," said Cohen (D-Union), the chairman of the Assembly Financial Institutions and Insurance Committee.  "A moratorium is needed to provided breathing room so regulators, investigators, and lawmakers can get a handle on what this meltdown means for New Jersey homeowners and what potential safeguards may be needed for consumers."

In a letter sent to New Jersey Attorney General Stuart Rabner, Cohen requested the Office of the Attorney General (OAG) issue a moratorium on subprime lending firms initiating new foreclosures, pursuing pending foreclosures, and evicting homeowners for up to six months so the Legislature, the Department of Banking and Insurance (DOBI) and the Office of the Attorney General have time to examine the problem and address solutions.

If the OAG deems such a moratorium to be unenforceable through their office, Cohen has asked the attorney general to advise Governor Jon Corzine on the feasibility of issuing a subprime foreclosure moratorium via Executive Order.

In his letter, Cohen states the current turmoil in the subprime market stems from several sources:

Many subprime lenders authorized too many loans to people who could not afford to continue making the monthly mortgage payments, as a majority of these subprime loans do not require a down payment or even verification of annual income.  These loans typically carry an artificially low interest rate during the first few years and then are either reset to a higher rate, begin principal repayments, or even come due in their entirety, which can increase monthly payments by as much as 30 percent.

Unscrupulous lending practices by brokers and lenders have added to the problem.  There have been numerous occasions cited across the country where mortgage brokers or lenders have steered borrowers to subprime loans that were too risky, refusing or "forgetting" to disclose that they received a higher commission for issuing a subprime loan and refusing or "forgetting" to disclose that the interest rates could change.

Borrowers also share some responsibility concerning the subprime market problem by stating fraudulent incomes on subprime loans that required no verification or proof of said income, claiming owner-occupancy on investment properties to get a better initial rate and colluding with sellers to inflate the value of homes.

"This whole collapse is made even more precarious because the real value of homes have dropped as the real estate boom has slowed," said Cohen.  "Thus, you have homes where the mortgage owed is greater than the value of the property."

Analysts estimate that the collapse will force more than 1.5 million homeowners across the nation into foreclosure this year alone, with 2008 on track to experience an even larger subprime meltdown, when four-year, interest-only mortgage payments convert to much higher monthly mortgage payments.  This expected defaulting by many borrowers, coupled with stricter lending standards on future mortgages, could combine to trigger an economic recession as home values continue to drop.

As part of his effort to address the subprime lending crisis in New Jersey, Cohen will be holding a special public meeting of the Assembly Financial Institutions and Insurance Committee on the topic of subprime lending 1:30 p.m. Thursday, April 19, in Committee Room 12 of the State House Annex, Trenton.

"Without some form of government intervention, we will see a dramatic increase in the amount of subprime foreclosures in the coming months," said Cohen.  "We have a responsibility to protect the people affected by these subprime loans gone bad before the effects of this meltdown triggers absolute chaos in the entire lending industry and undermines our entire economy."

--A COPY OF COHEN'S LETTER IS ATTACHED--