Protecting Oregon Homebuyers

By Representative Paul Holvey (D-Eugene).

The rate of foreclosures more than doubled in some parts of Oregon during the first half of this year – a grim reminder of the sub-prime mortgage lending crisis that helped set off the nationwide economic collapse and continues to threaten the wellbeing of Oregon families.

The crisis started, of course, because lenders were given free reign to offer risky loans to unsuspecting borrowers, who were often left unaware of their loan’s shifting terms and lacked the ability to repay the loan. As Chair of the House Consumer Protection Committee, one of my top priorities is to minimize the potential for this situation to occur.

In 2007 and 2008, the mortgage lending industry, aided by Republicans in the Legislature were able to block sensible reforms, even as the impending foreclosure crisis was becoming evident. In a reminder that elections matter, this session we were able to pass real reforms that will help prevent a future housing crisis.

Two bills I championed this session were signed into law this past week by Governor Kulongoski. Democrats stood up to protect consumers and move toward economic recovery. Unfortunately, the same folks who got out of the way as mortgage lending standards decreased tried to stand in the way of these reforms, even though some industry groups signed on. Both bills passed on nearly party line votes in the House.

HB 2188 applies federal guidelines to our state to ensure sound underwriting of subprime loans to a risky loan product – negative amortization loans. With negative amortization loans, the borrower’s initial monthly payments are lower than the interest on the mortgage. As a result, the principal amount owed grows, forcing the borrower to refinance or the payments go up substantially.

Under HB 2189, licensed mortgage brokers are required to register their loan originators with DCBS, ensure their loan originators have met education standards about lending practices and have passed background checks. Homebuyers need confidence in their loan originators in order for the housing market to rebound, and this bill will help.

The seriousness of our economic climate and record increase of foreclosures can be traced directly to the deregulation of the mortgage lending industry and financial markets. Putting requirements, accountability, and standards back into lending practices will protect consumers. It will also bring credibility back to a critical industry needed for economic recovery. The impact to our economy and individual consumers has proven that blind devotion to deregulation is a detriment to a sustainable and socially responsible economy.

Comments

  • bird (unverified)
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    Thanks for the work you are doing. Sadly, it doesn't address the root of the issue, but I suspect no one will address that. There are few new buyers due to the economy and the banks not lending to anyone that needs it. It is odd how anyone caught by the depression has been left out of the stimulus, isn't it? You statement of hope is rather depressing however, as it assumes many facts that are not in evidence; "Homebuyers need confidence in their loan originators in order for the housing market to rebound, and this bill will help." The idea that the banks are going to suddenly become anyone's friend after taking us for all we have, and then getting bailed out, and now not lending, is, well, unbelievable.

  • Pat Ryan (unverified)
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    Thanks for your diligence on this one Rep. Holvey. We know that the gears grind slowly but these efforts seem well thought out and the trade off with speed is why we have legislators rather than activists making policy.

    One tiny quibble: Free Reign might describe an unrestrained Monarch. I think you were looking for Free Rein, which is when a horse is allowed to take charge of his own direction.

  • Scott in Damascus (unverified)
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    I completely agree with Mr. Holvey's assessment on what brought us to our current economic climate regarding housing and foreclosures.

    However I propose 1 more simple change - anyone wishing to purchase a house, condo, duplex, or whatever should be required to put down 5% cash plus closing costs. Bring back the days when people sacrificed for years in order to purchase their first home. I believe few would be willing to walk away from their home and equity if they actually had some skin in the game.

    Those with zero down and a ballon payment in 5 years are just investors and gamblers - with their neighbors and whole communities left holding the bag when they walk away.

  • Rep. Peter Buckley (unverified)
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    Jeez--about time you got something done, Holvey.

  • Steavis (unverified)
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    "HB 2188 applies federal guidelines to our state to ensure sound underwriting of subprime loans to a risky loan product – negative amortization loans."

    Great timing - No one does neg amort loans anymore. Once again we're ahead of the curve.

  • George Anonymuncule Seldes (unverified)
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    There is, as some have noted, an air of closing the door on emtpy barns here. However, one can never be sure that corporations won't go right back to predatory lending the instant that they have a chance . . .

    However, a more useful consumer protection innovation that would never stop being helpful to protect homebuyers and renters would be to require home weatherization and energy audits prior to sale (or lease on apartments that have not had one done within five years). This should include a requirement that the seller provide the utility records for the home. Highly efficient homes could qualify for energy-efficient mortgages (mortgages that recognize the reduced cost of ownership thanks to efficient use of energy); and buyers would have warning of homes that are cheap to buy but expensive to heat/cool.

    Excessive utility bills are just another way people can wind up unable to afford a home, which then goes into foreclosure. If you want to protect people, require that sellers undergo an energy audit/weatherization inspection and disclose the results to prospective buyers.

    As our climate destabilizes, we are likely to experience more and more of these sustained extreme temperature periods, which can be devastating to peoples' finances. The sale of a property is a perfect time for us to find out where the opportunities are for improved conservation (and to protect lower-income buyers from utility-bill-shocks).

    P.S. Free rein, not reign.

  • Bill Bodden (unverified)
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    "However, one can never be sure that corporations won't go right back to predatory lending the instant that they have a chance . . ."

    Perhaps the above should be: However, you can be sure that corporations will go right back to predatory lending the instant that they have a chance . . .

    "However, a more useful consumer protection innovation that would never stop being helpful to" protect homebuyers and renters would be to require home buyers to read a small but incisive pamphlet in clear language at the level of high school English, written by an impartial authority, that explains clearly what is involved in the purchase of a home and the risks that may be present.

  • Mrs M (unverified)
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    It seems to me that more should be done to help those being victimized not only by the lenders, but by ridiculous fees charged by others in the home sales business.

    Realtors charging 20 or 30 thousand dollars to sell a home in most circumstances is a shameful practice, and fees or points of 3 or 4 thousand dollars to finance a home is just as shameful. Sure, no one is there twisting your arm to hire a realtor, but just another example of how the uninformed can be taken advantage of.

  • Old Ducker (unverified)
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    The crisis started because the FED pumped too much credit into the mortgage industry. The sub prime loans were a result of this, not a cause. There were other factors too, such as the CRA and related legislation.

    Not trying to be picky here but if people (especially legislators) don't get it right, they're just setting up a redux...which btw is exactly what is happening now.

    There is a very simple way to determine whether housing is overpriced, just look at rents. If you can rent a house cheaper than you can own it, i.e.mortgage payement plus insurance,property taxes and anticipated maintenance, then the house is overpriced. Rents, when unregulated, reveal the true market value.

  • Steve (unverified)
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    "one can never be sure that corporations won't go right back"

    Yeah, you're right, all this legislation sure stops a lot of those Pnzi schemes.

  • pacnwjay (unverified)
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    I agree completely, Scott. And I'd add one further protection: stop banks and lenders from treating mortgages like a buyable and sellable commodity.

    In my eyes, one of the big problems with the real estate bubble was that mortgage brokers, bankers etc didn't care if they made bad loans... they weren't going to hold on to them anyway. If a bank or lender had to hold the note for the life of the loan (or until refi-ed or forclosed) they would make more prudent decisions.

  • Scott in Damascus (unverified)
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    "And I'd add one further protection: stop banks and lenders from treating mortgages like a buyable and sellable commodity."

    Or at the very least - make the lending institution hold the loan for a minimum of 5 years.

    That would effectively stop garbage loans overnight.

  • rw (unverified)
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    "a grim reminder of the sub..."

    Trite, trite trite. It was not a :gasp: "grim reminder" (a thousand other ways you could have used your very own words to express this!) - it was the thing itself! Egad. While I appreciate your effort, this writing is hack. It smells of spin from the first ten words and is hard to read! I would dearly love to hear it done again in your own words, no pat phrasing. For me, the timing on that doubling was right on time, it was part of the experience being reported nationally, not some dim "reminder" somehow letting us know out in the hinterlands of attention and experience that something Big is going on Out There... oy.

    I hate being talked down to! I love erudition in the writing! I love policy but I like it when it's adroitly articulated!!

    I know... it's possibly a fact that my apartment, fully three degrees hotter than reported temps and not cooling down between spells... well... my brain is baked and I did not come back from ceremony in presentable temper! :)

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    Mrs M-- The only way a 3% realtor fee is $30,000 is if the home is a million bucks. To my mind, the difficulty in selling a million dollar house (esp. in this market) probably justifies all the time investment and marketing help you need on that million dollar house.

    What is less defensible is the $10,000 fee on the well-priced $333,333 house that is still likely to move quickly.

    I see the argument for % fees on home sales - their incentive is aligned with the sellers'. But on a home purchase, it makes less sense - since the incentive is counter to your interest.

  • secrets of the temple (unverified)
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    Old Ducker, stop speaking the truth here at BO. You should know better...

    YouTube

  • Mrs M (unverified)
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    Kari,the problem is there are many other options, and the sellers don't always know that. They have so much to lose, and do not know they can negotiate. 7% vs 3% for selling your home? I can tell you it varies, and the less informed, elderly, or less educated sellers are the ones likely to not understand those options.

    The realtor does a price survey. Big deal. Any dolt can look at home prices in their area, and figure the price for their home. Open houses? Same deal. The contract? Any lawyer will do it for a few hundred. Realtors get a foot in the door, wait till your home has been on the market for a week or two, then they tell you it's time to drop the price. They do not get paid till they sell it and will encourage you to do so even against your better judgement. Sound familiar? Kinda like the lenders were doing with their loan offers?

    For a moderately priced home at 250K the cost to sell would be 15K if the realtor charges 6%. 15K! For what? a few open houses and handling the paperwork. I can tell you I have bought and sold on my own many times, and this is not rocket science. And a mortgage company charging 1% or more for moving some paper around on the loan? Puleeeese!

    This is the biggest scam going right now, and the biggest threat those most vulnerable. Lenders have already figured out we are on to them. The Realtors and mortgage companies should be next! Beware though, their lobbies are as strong as any.

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    Old Ducker: The crisis started because the FED pumped too much credit into the mortgage industry. The sub prime loans were a result of this, not a cause. There were other factors too, such as the CRA and related legislation.

    This screed is so wrong in so many different places, I don't know where to begin.

    Worse - because BlueOregon uses some bizarre net nanny that is broken, I can't seem to get my comment posted, so I'll try by breaking it up....

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    Old Ducker: The crisis started because the FED pumped too much credit into the mortgage industry. The sub prime loans were a result of this, not a cause. There were other factors too, such as the CRA and related legislation.

    This screed is so wrong in so many different places, I don't know where to begin.

    The Federal Reserve controls the money supply. They do not direct money to go to one industry and not in another. Individual corporations decide to do that.

    And The Community Reinvestment Act (CRA), is about the only thing that remained solvent and responsible in this crisis: The Community Reinvestment Act: A Welcome Anomaly in the Foreclosure Crisis Indications that the CRA Deterred Irresponsible Lending in the 15 Most Populous U.S. Metropolitan Areas

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    Old Ducker: There is a very simple way to determine whether housing is overpriced, just look at rents. If you can rent a house cheaper than you can own it, i.e.mortgage payement plus insurance,property taxes and anticipated maintenance, then the house is overpriced. Rents, when unregulated, reveal the true market value.

    I'm amazed by the lack of basic understanding of economics this paragraph reveals. If I can take $10,000 and a 90% loan to buy a $100,000 house, and then just break even (not making any money) renting it out. Then over a 30 year loan, that is the equivalent of earning 7.977% interest on my original $10,000, because at the end of that time I will own a $100,000 house free and clear. And that assumes no appreciation in the home value itself over 30 years, which is absurd.

    In reality, people are very willing to run slightly negative on payment vs rent, because it is an investment. Though I must say that it is true that the right wing, in trying to build the "ownership society" (in which sitting on your ass as an "owner" gives you massive tax advantages over actually working and building things), has distorted the rental market tremendously: people buy things that don't make economic sense merely for the phantom passive loss they can write off on their taxes.

    Old Ducker, please come back when you have some basic grasp of economics.

  • Kurt Chapman (unverified)
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    We can probably agree that there are more than enough villians to point at in the mortgage meldown crisis. While it may appear the barn door is beeing addressed after all the 4 legged animals are gone, I'm glad for some review and addressing of issues.

    Now, would somebody please address this Cash for Clunkers fiasco in the making? How responsible is it to induce folks with little cash to sign up for car notes in the realm of $450-$550/month for the next 5-7 years? Can't we remember cause/effect here?

  • Old Ducker (unverified)
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    Steve Maurer, puhleeze.

    My basic grasp of economics tells me that interest rates in a free market are based on savings. Low interest rates therefore are indicative of a surplus of savings and since savings are a limited resource, banks have an incentive to be conservative in lending practices. Back in the 1920's, you typically needed a 50% down payment to receive a mortgage whose term was far less than 30 years. Naturally most people didn't own homes back then (but were obviously encouraged to save).

    But we don't have a free market, do we...

    Today due to the magic of the FED, we can have low interest rates and virtually unlimited credit. Now what do you do with all this cash if you're a bank? First, since this credit is simply zeroes added to your ledger, you don't particularly care about losing some of it, hell you can always get bailed out by the taxpayers, right? And those old fashioned 30 yr fixed mortgages just don't cut it for putting those zeroes to work.

  • andy (unverified)
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    Holvey seems like just exactly the wet-nurse Democrat that Eugene would elect. Oh my goodness, people are going to sign contracts worth hundreds of thousands of dollars and gasp, not actually understand what they are signing? Quick, send in the wet nurse Holvey to burp them and wipe their bottoms and to tell them what the terms of the contract mean.

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    Old Ducker: Steve Maurer, puhleeze. My basic grasp of economics tells me that interest rates in a free market are based on savings.

    No, Old Ducker. I'm sorry, but you're wrong again.

    Rates of return are largely based on perception of risk. Securities are even categorized as such. ( There is an entire industry that is supposed to offer value judgments about what is risky and what is not, which would be a fine way of doing things if that industry wasn't corrupted by association with people selling those very securities. )

    That is one of the reasons why markets are so manic-depressive: it doesn't matter how much money you've got in your pocket (savings), you won't invest, even in a very good deal, if you think it's going to still lose a little more money. And in bubbles, you don't look to hard at the crap you're buying if you think that the market is going up up up!

    Old Ducker: Now what do you do with all this cash if you're a bank? First, since this credit is simply zeroes added to your ledger, you don't particularly care about losing some of it, hell you can always get bailed out by the taxpayers, right?

    There have been 133 banks that have failed in 2009. There have been a handful, less than 10, declared "too big to fail". Those aren't exactly good odds.

    And when you go looking at the "too big to fail" banks, you find that some were being helped because the Bush administration pressured them to buy bad companies to prop up the financial system. Bank of America buying Merrill Lynch, for instance. BofA was doing just fine for themselves before they were asked to make that purchase.

    And when you go look at who was purchased, you start to notice that they're all "pseudo-banks", acting like banks in all but name, but escaping regulatory oversight, especially restrictions on leveraging. Very profitable in an up market, when employees make billion dollar bonuses, but everyone else is left holding the bag as soon as the bubble bursts.

    In short, Old Ducker, you blame the Fed for causing this mess. In reality, the Fed is responsible for the fact that home ownership is 20% higher than it was in the 1920s, because it puts the full faith and credit of the U.S. government behind loans. The real blame goes to the Republicans for gutting the other side of the bargain - the regulatory oversight that prevents banks from gambling with other people's money.

  • andy (unverified)
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    Kurt,

    The cash for clunkers topic is worth a post of its own. I'm surprised there hasn't already been one on here. Why exactly are we spending billions to subsidize the production of new automobiles when the existing ones work fine? That is a strange thing for an administration that claims to be interested in the environment in doing. Start a new post and I'm sure lots will join in with some opinions.

  • mike (unverified)
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    Steve Maurer: "There were other factors too, such as the CRA and related legislation."

    The CRA applies only to depository banks. Most of the outfits doing these dud loans were not such banks (countrywide)and thus were exempt from the CRA.

    As for Steavis's comment this legislation is unnecessary becausel enders are not closing thse loans anymore: Just watch; once it cools down greed will cause them to try again hence the need for this law.

  • Fred Stewart (unverified)
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    Right now many Oregonians are wishing banks would offer risky loans as many of them wish they could take advantage of the housing opprotunities that have developed over the last year. The people most at risk of being shut out are minorities. Over the last 15 years minorities have seen more access to capitol than all of the previous generations combined. Sure things could have been better but what we witnessed is as significant as watching President Obama take the oath of office in January.

    Make no mistake, banks went a little to far, however, in that over reaching lets remember that many Oregon families that do not FIT the norm when it comes to income and financial advantages were able to obtain financing for homes that fundementally people in their economic reality usually were not able to even consider....as in buying anything.

    What we have now are banks that are afraid to lend and that means there are good Oregon families that will not be able to advance their families in the direction they have worked so hard for or address needs such as sending their kids to the college of their choice if at all.

    We need banks/lenders to take risk. We do not need these risk to be to aggressive. When banks stop taking risks, the average working man an woman in Oregon pays for it. We see that in how many people have lost their jobs already. We have seen it affect who choose to run for office and who does not. Face it for many being in the Oregon Legislature is a dumb move financially. If not for the access to funds that would allow some law makers the ability to manipulate their equity and debt. They would not even consider let alone run for office.

    Over the next two years we must monitor ourselves and make sure our hard working political leaders do not move to far afield to rein in "Lenders" Because we might get just what we hope for and that could be something far worse than what we have today. We could have what we had 20 years ago and that was a lot uglier than this.

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    mike: As for Steavis's comment this legislation is unnecessary becausel enders are not closing thse loans anymore

    I was quoting Old Ducker. That is not my analysis. I agree with you.

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