SENATE RESOLUTION No. 91

STATE OF NEW JERSEY

213th LEGISLATURE

 

INTRODUCED OCTOBER 16, 2008

 


 

Sponsored by:

Senator JEFF VAN DREW

District 1 (Cape May, Atlantic and Cumberland)

 

 

 

 

SYNOPSIS

     Urges federal authorities to enforce existing laws and regulations governing financial institutions in as vigorous a manner as possible in view of present economic circumstances.

 

CURRENT VERSION OF TEXT

     As introduced.

  


A Senate Resolution urging federal authorities to enforce existing laws and regulations governing financial institutions in as vigorous a manner as possible.

 

Whereas, The reasons for the current economic crisis are varied, complex, and interrelated, but are commonly attributed to certain major factors, including the development of high-risk subprime mortgage products, investments by commercial banks in mortgage backed securities, inadequate regulation by a patchwork system of federal and state regulatory authorities, poor judgment by some borrowers, poor judgment by some mortgage lenders, and deflation of the housing market; and

Whereas, The use of subprime mortgages grew rapidly from the mid 1990’s to 2006, reaching its highest levels between 2004 and 2006; and

Whereas, The increase in subprime lending represented a clear shift from conventional, fixed rate mortgage loans with traditional underwriting requirements to origination of riskier subprime loans with generally less review by lenders, including loans made on a “stated income” or “no documentation” basis, meaning that borrowers were not required to produce proof of income or financial status in order to qualify for a mortgage; and

Whereas, The patchwork system of federal and state statutes and regulation may have contributed to the development of new, complex mortgage products that consumers did not understand despite required disclosures, inadequate regulatory requirements for mortgage solicitors who, in some instances, steered consumers toward riskier loans, a general lack of  “reasonable ability to pay” standards that would have required lenders to assess at the time of origination whether a consumer could repay a loan throughout its entire term, and a lack of adequate controls on investments by commercial banks in mortgage-backed securities; and

Whereas, New Jersey, like many other states, enacted laws, such as the “New Jersey Homeownership Security Act of 2002,” P.L.2003, c.64 (C.46:10B-22 et seq.), that have been effective at protecting residential borrowers against predatory mortgage lending practices by state chartered financial institutions; and

Whereas, Federal regulatory agencies, such as the Office of Thrift Supervision and the Office of the Comptroller of the Currency, have cited the preemptive effect of federal laws, such as the National Bank Act, and have taken the position that states are preempted from applying the consumer protections contained in their anti-predatory lending laws to federally chartered financial institutions; and

Whereas, Claims of federal preemption have prevented regulatory agencies in New Jersey and other states from applying state laws, such as the “New Jersey Homeownership Security Act of 2002,” to restrict a significant amount of predatory lending activity, which has increased with the growth in the subprime mortgage market in recent years; and

Whereas, The United States Supreme Court recently expanded the doctrine of federal preemption by holding, in Watters v. Wachovia Bank, N.A., that federal preemption also prohibits states from regulating mortgage lending activities of the operating subsidiaries of national banks; and

Whereas, Inasmuch as the current economic crisis demands an immediate response, until such time as a more efficient system of regulation of the financial services industry by and among federal and state regulators can be devised, all agencies currently charged with regulation of financial institutions should enforce existing laws and regulations governing those institutions in as vigorous a manner as possible in view of the present economic circumstances; now, therefore,

 

     Be It Resolved by the Senate of the State of New Jersey:

 

     1.  The Senate of the State of New Jersey respectfully urges the United States Attorney General, the United States Secretary of the Treasury, the Chairman of the Federal Deposit Insurance Corporation, the Chairman of the Federal Reserve, and the Chairman of the United States Securities and Exchange Commission to enforce existing federal laws and regulations governing financial institutions in as vigorous a manner as possible in view of the present economic circumstances, specifically focusing on oversight of financial institutions’ risk management practices and closer supervision of underwriting standards for new mortgage products.

 

     2.  Duly authenticated copies of this resolution, signed by the President of the Senate and attested by the Secretary thereof, shall be transmitted to the United States Attorney General, the United States Secretary of the Treasury, the Chairman of the Federal Deposit Insurance Corporation, the Chairman of the Federal Reserve, and the Chairman of the United States Securities and Exchange Commission.

 

 

STATEMENT

 

     This Senate resolution urges the United States Attorney General, the United States Secretary of the Treasury, the Chairman of the Federal Deposit Insurance Corporation, the Chairman of the Federal Reserve, and the Chairman of the United States Securities and Exchange Commission to enforce existing federal laws and regulations governing financial institutions in as vigorous a manner as possible in view of the present economic circumstances, specifically focusing on oversight of financial institutions' risk management practices and closer supervision of underwriting standards for new mortgage products.