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I Hate New York
The iconic I “Love” NY campaign is one of the most successful, image-changing advertising campaigns ever. But sometimes the hype doesn’t necessarily match up with reality.
Such is the case with the mortgage business in the Empire State. Lenders there, if they aren’t ignoring New York all together, are more likely to have an “I Hate NY” snow globe on the desk.
“New York is the most difficult state on the planet to do business in,” said Steven A. Milner, 73, founder and CEO of U.S. Mortgage Corp. and president of the New York Mortgage Bankers Association.
How bad is it? A prominent mortgage company recently got licensed to do business in New York after five years. Company officials didn’t want to comment. They didn’t want to comment on expanding into a market with mortgage balances of $10.93 trillion at the end of 2021, according to the New York Fed.
Milner, who was born in New York and has spent most of his life there, said there are a number of areas the state is not considered business-friendly, ranging from inefficiency and over-regulation, to lengthy licensing periods and unnecessary roadblocks.
All states, he said, have minimum educational requirements for obtaining a loan mortgage officer’s license. In most states once that is done and is submitted to the banking department, the wait time is 30 to 60 days. In New York it’s 4 to 6 months.
Milner also noted that in New York, loan officers are required to maintain a business office, with all the associated costs, and are prohibited from working out of their homes.
“Many (independent mortgage servicers) will not pursue licensing in New York. It’s just too much of an arduous process,” said Milner, who has been operating in the state for nearly three decades. “It’s a compilation of things regulatory and compliance. We speak to DFS (the state Department of Financial Services) all the time about this.”
Not A Lone Voice
Others have expressed frustration with operating in New York, but declined to give their names for interviews out of concerns that state regulators have long memories. Others declined to speak at all, voicing the same reason.
One New York attorney, whose clients are in the lending industry, agreed that state agencies make it hard to break into the state’s mortgage industry.
“It takes three years to get a banking license, assuming you get it,” the attorney said. “They’re very particular.”
The attorney has stopped representing new clients looking to do business in New York. In the end they frequently lay blame with their legal counsel for delays and rejections followed by more delays and rejections from the department of financial services.
“At the end the clients are pissed at you,” he said.
He also noted the plethora of lenders who do business in almost every state in the country, besides his own.
“They’re licensed in 47 states, except North Dakota, South Dakota and New York,” the attorney quipped. (Seen those disclaimers where lenders say they’re licensed in 49 states? The outlier is usually New York.)
“We’re going to have to assess the pricing of the secondary market.”
– Steven A. Milner, founder and CEO of U.S. Mortgage Corp. and president of the New York Mortgage Bankers Association
On a more serious note, the attorney said that constant delays, requests for more information and moving of the goal posts could lead some frustrated business people to engage in unethical or even illegal activity in order to close time-sensitive deals.
“They create an incentive to do wrong,” he said.
The attorney said there’s a bright side to the difficulties of doing business in New York though, especially in the mortgage industry, where those already approved have a big advantage over those trying to get a foot in the door.
“There’s a big benefit, only from the point of barrier entry,” he said. “Of course, they’re not trying to give you the benefit.”
The attorney was also sympathetic to the manpower and experience constraints at DFS where, he said, the best people are frequently transferred to other departments, leaving newer, inexperienced people to deal with complex issues.
Despite their well-earned reputation for dragging out the process and piling on requirements not found in many other states, the attorney said DFS has a tough job.
“They are doing what they are supposed to be doing, but do they go too far?” he said. “It’s a very fine line.”
DFS officials did not respond to requests for comment. Nor did the Senate and Assembly chairs of the New York legislature’s Commerce, Economic Development and Small Business standing committees.
New Laws Aren’t Helping
Earlier this year the New York assembly and senate passed bills designed to reform the state’s mortgage foreclosure laws.
Lawmakers said that the aim of the Foreclosure Abuse Prevention Act was to eliminate abusive and unlawful litigation tactics that had been adopted and pursued by lenders in mortgage foreclosure actions to manipulate the law and the courts to yield to expediency and the convenience of mortgage bankers and servicers.
The legislature’s action arose out of a 2021 New York appeals court decision in the Freedom Mortgage Corp. vs Engel case, which proponents of the bill said had given mortgage lenders and their servicers the ability to “unilaterally manipulate, arrest, stop and restart the limitations period at will,” to the detriment of New York homeowners dealing with foreclosure actions.
As a result, lawmakers said, courts throughout the state were bombarded with a flurry of motions made by lenders to reopen foreclosure cases that had been dismissed years ago on statute of limitations grounds.
The court’s decision allowed lenders to voluntarily pause the six-year statute of limitations countdown on foreclosures and restart the process as long as it was done within six years. The result, according to lawmakers, was that foreclosure actions were no longer time-barred and countless homeowners were trapped “in a state of judicial purgatory with the fate of their homes suspended in incertitude.”
Opponents of the bill countered that it would severely limit the mortgage holders right to reach the merits of a foreclosure claim and encourages borrowers to to delay foreclosure proceedings and ignore loss mitigation and debt restructuring efforts made by lenders.
The bill, they maintained, also penalized lenders for any procedural errors that, in some cases, could result in a defendant receiving a free house in a windfall, and that the bill did not grandfather” or exclude foreclosure proceedings that are already close to or beyond the six year statute of limitations.
“It’s going to increase costs for small businesses because more compliance equals more risks and that always gets passed on to the borrower.”
– Steve Grable, New York attorney
Gaming The System
Milner noted that he is still trying to foreclose on a $2 million loan he completed in 2006. The couple isn’t paying their mortgage or insurance and are still living in the house. He said the state’s foreclosure process is probably “the biggest reason people don’t come to New York.”
The new law has not been signed yet by Gov. Kathy Hochul and some lenders have weighed with suggested amendments to the legislation before she does. Milner is predicting that some borrowers will figure out a way to game the system with the help of lawyers who see a new revenue stream.
“What’s going to happen is you’re going to see lawyers providing foreclosure delay services,” he said, adding that he’ll have to consider getting out of mortgage servicing, which makes up 25% to 30% of the company’s business, or charging more to offset the increased risk.
“We’re going to have to assess the pricing of the secondary market,” Milner said.
New York attorney Steve Grable, who specializes in small business and middle market lending, also pointed to another new law he expects to take effect in his state and many others now that California has finalized details of its consumer finance disclosure measure and is about to enact it.
The law will require lenders — many of whom are non-traditional and cater to borrowers who don’t qualify for traditional forms of credit — to provide borrowers with “crystal-clear” documentation of all aspects of a loan they are taking out, including interest rates and total payout.
While he understands the need for transparency, Grable said, like most regulations, it will come with more costs to the lender. “It’s going to increase costs for small businesses because more compliance equals more risks and that always gets passed on to the borrower,” he said.
Taxes, Taxes, Taxes
And then there’s the taxes. According to the Tax Foundation, a Washington D.C.-based think tank founded in 1937 to monitor tax and spending policies of government agencies, businesses that are in New York or thinking about moving there definitely aren’t feeling the love.
According to the foundation’s 2022 State Business Tax Climate report, New York ranked 24th in corporate taxes, but overall was 49th in the country beating out only New Jersey.
That’s because New York ranked 50th in individual taxes, 47th in property taxes, 42nd in sales taxes and 36th in unemployment insurance taxes.
“New York has been trending in the wrong direction (on taxes) for a long time,” said Jared Walczak, vice president of state projects for the foundation. “Businesses aren’t necessarily looking for the lowest taxes, but they want balance.”
Walczak said taxes have always been a consideration for businesses, as well as individuals, but since the pandemic both have started to rethink if they need to be headquartered in, or physically work in, high cost areas like New York City.
“New York policy makers have felt very safe for a very long time,” Walczak said, adding that to a certain extent the state and New York City will continue to be an economic powerhouse.
But as other states increase competition, and more people leave as lawmakers last year raised taxes and introduced a new corporate tax for companies making over $5 million a year, Walczak said those policy makers should be concerned about the state’s trajectory.
“It’s especially true now,” he said.