A "big win" on subprime mortgage reform

Yesterday, a bill to reform the subprime mortgage loan industry made it through the Oregon House. The Associated Press reports that three Democrats defected from the bill, and Speaker Jeff Merkley found three Republicans to replace them - winning a 31-29 vote.

A bill to make modest reforms to the subprime mortgage lending industry squeaked through the Oregon House Thursday, a big win for House Speaker Jeff Merkley who has made it clear that he intends to highlight the issue in his campaign for the U.S. Senate.

The measure now moves to the Senate. ...

Three Republicans joined with the majority Democrats to support the bill, Reps. Bill Garrard of Klamath Falls, John Lim of Gresham and Donna Nelson of McMinnville.

The final vote was 31-29. ... Three Democrats split from their caucus, including Reps. Larry Galizio of Tigard, Debbie Boone of Cannon Beach and Mike Schaufler of Happy Valley.

On the policy:

It would put an expiration date on the "prepayment penalties" that creditors have to pay if they want to refinance or pay off their loan early. Further, mortgage brokers would have to clearly disclose all terms, fees and costs associated with the loans they are providing. ..

Reaching that compromise wasn't easy: Industry groups lobbied strongly against the proposed reforms, saying that they'll put state-chartered businesses at a competitive disadvantage, and could price some low-income buyers out of the market. Their hopes for derailing the bill now rest with the Senate, where Democrats hold an 18-11 majority. ...

Some consumer advocates, including the influential AARP, withdrew their support from the proposal after several key components that they'd sought were lost along the way, including the requirement that a creditor verify that a borrower had the ability to repay the loan.

Others took a longer view. Angela Martin, a spokeswoman for the union-backed advocacy group Our Oregon, called the bill a worthy first step. She said that consumer groups will continue to seek even tighter regulations, either in the 2009 legislative session or as a potential ballot measure in 2010.

Read the rest. Discuss.

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    Hot damn, Jeff is good!

    While I'm also sorely disappointed by the three Democrats who were so influenced by subprime mortgage industry lobbyists that they voted against this, they deserve the chance to explain to us why they did what they did.

    But the real question is the Senate. If this doesn't pass, or doesn't even come up in a body overwhelmingly dominated by Democrats, I think we're owed a full accounting of who killed it. So we can make sure they have a serious challengers in the primary.

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    It bears mentioning here that this morning the Street Roots paper has pegged Subprime the latest policy of poverty.

  • PSJackson (unverified)

    It is great to see Our Oregon come around and support doable fixes to the loan industry. This bill also has the support of the Oregon Law Center and the industry group the Oregon Collation of Mortgage Originators. Hopefully the Senate can iron out the issues and move it today.

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    Hooray! Another half step bill barely passed in the House because Dems were too afraid to be criticized while passing a strong bill--that's the pattern we've come to expect. Nothing says "change" like a weak half-measure fix to a tough problem!!

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    A weakened bill passes on the narrowest of margins, 31 to 29, in a chamber which Democrats have the slimmest of majorities - which is the most that the Oregon house could do given the circumstances, which include heavy Mortgage Industry opposition. Next it goes to the senate where Democrats have a much larger majority, can reinsert the stripped provisions and still pass it even if a few Dems defect.

    Those are the realities and yet the Purity Trolls would prefer that Democrats in the house ought to have effectively cut off their noses to spite their faces by taking an unwinnable stand which would have resulted in ZERO progress?

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    I;'m guessing that we don't have to wonder too much about the defections of Boone and Schaufler as they've often been reliable votes for the perceived interests of the development industry (Mike is, after all, a general contractor), but I'd like to know a bit more about Galizio's reasoning.

  • Purity Troll (unverified)

    Whoopie!!! Yet again the same conversation on Blue Oregon.

    SB1090 enters Get's whacked Leadership rolls over New bill arives that does little J.Merkley gets to look like a hero Anyone who thinks this wasn't a success is called "troll" Please visit: www.actblue.com

    The bill headed to the Senate is barely a compromise - I'm not even sure what it is.

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    kevin,I'm pretty sure any changes to the bill would need to be ratified by the house, so they can't just "put them back in."

    And I'll assume you're not talking to me since I'm certainly no purity troll--but just in case, where did you get the idea that I would have preferred no bill at all? You made up the same utter nonsense on marriage equality, and it's no less off base in this context. You can say it's a capitulation born of weakness AND find the weaker bill better than nothing, you know.

  • RuMo (unverified)

    Leadership rolls over

    Quoted for truth. I'm getting REALLY tired of electing jellyfish.

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    Exactly. Any changes the Senate makes has to be voted on by the House. They have to approve the exact same versions.

  • Miles (unverified)

    The bill seems weak compared to the original. It puts a time limit on prepayment penalties but doesn't prohibit or restrict them. It requires full disclosure of terms, fees, and costs but doesn't require the lender to verify the ability of the borrower to repay the loan. The bill is fine as far as it goes, but it doesn't go very far.

    So now it's a political issue: Is this the best Oregon could do? Kevin argues yes, given the narrow majority in the House, we should be happy we got this much. He may be right, in which case "Bravo, Merkley!"

    But he may be wrong. I'd like to know how much pre-work was done with the Democratic caucus on this issue. Why did we lose three Democrats? Were they consulted during the drafting of the proposal, were their concerns addressed? Is Schauffler always going to vote against strong mortgage regulation, or were there specific concerns he had that weren't taken into account? And just how far would the three Republicans have gone with this measure? In other words, is this really the best we could get, or was the Speaker unwilling to take a chance on getting more because of the danger of getting nothing, which would hurt him politically?

    And let's stop with the vague "mortgage industry opposition" canard. Lobbyists have ZERO power to stop legislation; they only influence legislators. So if you're arguing that the mortgage industry convinced Democrats to water down their bill, start naming names. Who did they get to? Galizio? Shauffler? Merkley?

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    Okay, RuMo... I'll bite.

    You're the Speaker. There's a bill (SB 1090) that you'd very much like to see pass, but in order to pass it needs get more votes in favor than votes against. It's stuck in committee... in the senate and of course your authority doesn't extend to the senate. Which is a crying shame because the Democrats have a significantly larger majority over there than you have to work with in the house.

    Even though it's not your job, you are nevertheless personally tracking down every senator you can find to pressure them into voting for SB 1090. But the clock is ticking. You know that the special session ends in a few days and the odds are against SB 1090 ever reaching your chamber.

    What more could you have done?

    You know that the only option you have under your own control as Speaker is to try to at least get something through your chamber which might also have a chance of getting passed in the senate. It's not what you want. Heck, one of the chief backers of SB 1090 is an organization which has explicitly endorsed you over Steve Novick. But you are powerless to move SB 1090 through the senate, despite your best efforts which by any measure go way above and beyond the call of duty, and passing nothing means that there will be zero progress made until next year at the earliest.

    What do you do?

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    Salem Report: Running the stairs Posted by Ryan Frank February 21, 2008 17:39PM Categories: Mortgage Reform Mortgage reforms cleared the House today but their future in the Senate is not clear. Late this afternoon, House Speaker Jeff Merkley circled the Capitol searching for Senate Democrats to make his case. Democrats have an 18-11 advantage but Merkley wasn't sure yet he had the votes. "I'm tracking down any senator I can find in the building," Merkley said. His search was complicated by Capitol romodel. Legislators don't have their normal offices.
  • andy (unverified)

    Umm, why did we even need to do anything? I bought a house within the last few years and I read the contract. Big deal, why can't other people read the contract before they sign it? What is up with all the morons who bought houses that they can't afford? The terms are in the contract, if you can't understand it then hire a lawyer.

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    andy: The terms are in the contract, if you can't understand it then hire a lawyer.

    If you're scraping every penny you have for the downpayment for your first house, how exactly are you going to afford to do that?

    Ask most kids promised the world when being recruited into the military, or people who've bought a car off some shyster's lot, there's a lot of crap buried in contracts that they make hard to hard to understand on purpose. And all the contracts say the writing is controlling - to allow the salesman to lie their asses off without consequence.

    But legalized fraud shouldn't destroy people's lives, so it's high time we put a stop to these deceptive practices in the mortgage industry.

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    Andy... I sympathize with your view. For months now, every time I heard some sap on television complaining how their ARM was going to bankrupt 'em, I'd holler at the TV - "What did you think was going to happen, you moron?"

    But that's not what we're talking about here. We're not talking about basic run-of-the-mill mortgages. And we're not talking about stupid lenders.

    There are predatory mortgage officers (not many, but enough) that didn't disclose to people, as they were required to, what the terms of the loans were that they were setting up. The loans were exceedingly complex, with clauses and exceptions that weren't disclosed or explained. In some cases, the loans were set up to bait them with a few thousand "cash back" at closing, and then drain their assets in a matter of months.

    I have no patience for morons, especially house-flippers, that got caught with their pants down on a basic ARM. But we need to do something to crack down on the predators that were taking advantage of people.

  • Steve (unverified)

    "But we need to do something to crack down on the predators that were taking advantage of people."

    Fine - but how many of these people would qualify for a mortgage once things got tightened up? I would bet a very, very small (if any at all) percentage.

    So effectively you will exclude these people from ever owning a house.

    AS far as deceptive, I think if you look at a loan now, thanks to all the laws/rules we have enacted the stack is now 200+ pages thick. So the State of Oregon will add another 3 (or whatever) pages and mortgagees will be even more confused.

    Brilliant solution! Of ocurse, I'd expect nothing less from politicians who have never had a real job.

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    Brilliant solution! Of ocurse [sic], I'd expect nothing less from politicians who have never had a real job.

    They had better have real jobs. Being an Oregon legislator pays next to nothing. They're like minor league baseball players who have to drive UPS trucks the rest of the year to pay their bills.

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    So effectively you will exclude these people from ever owning a house.

    Don't be silly. Some of these won't be able to qualify for a loan, sure. But forever? Not likely.

    Others were perfectly capable of qualifying for a regular loan, but were taken advantage of by predatory mortgage lenders.

  • Anon (unverified)

    The Oregon Senate refused to vote on or even hold a hearing on this mortgage lending bill. Ugh.

    House Democrats pass this bill with a 31-29 majority, but the Senate Democrats won't even consider it with an 18-11 majority? Ugh again.

  • Steve (unverified)

    "Don't be silly. Some of these won't be able to qualify for a loan, sure. But forever? Not likely.

    Others were perfectly capable of qualifying for a regular loan, but were taken advantage of by predatory mortgage lenders."

    Fine, as you love to say back it up with facts/figures. I know people in the mortgage biz and these "deceptive" loans make qualifying a lot harder and are usually last resorts.

  • Steve (unverified)

    "So effectively you will exclude these people from ever owning a house."

    Correct, I should have qualified it better. They would not qualfiy to buy a house given their credit rating and income at the time of application.

    When I said ever I was referring to the class of loan applicants not specific individuals, but that was not obvious.

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    I appreciate much of the discussion on HB 3603A.

    I filed a vote explanation on the bill in question; although those are probably only read by opposition researchers.

    For what it's worth, I'll briefly add my observations. (And I mean briefly, since I'm still a bit tired from the session).

    First, it shouldn't be forgotten that coming out of this very short session are bills concerning so-called "rescue mortgages" and loan originators - both of which should be useful. These bills were products of the mortgage workgroup that is expected to continue meeting as we move toward the '09 session.

    In no particular order, I voted against this bill for the following reasons:

    The agency tasked to implement the policy remained uncertain as to the significance and consequences of the bill. It was described as a "vanilla bill" by one member of the agency. Not only did the agency (which pushed hard for a much more comprehensive and stronger legislation) view the bill as tepid, and express uncertainty of its impacts, they admitted that they didn't necessarily have the expertise in-house to properly implement the legislation.

    Second, the bill was actively opposed by the very consumer groups that worked the hardest to get mortgage lending reform this session. All legislators received an email from AARP opposing the bill; additionally, OSPIRG was essentially neutral, if not hostile to the bill. And Our Oregon (which walked out of the mortgage work group months earlier) came out with tepid support at the eleventh hour.

    Third, the bill wouldn't have done that much. As has been expressed in this discussion, the bill was a last-minute watered-down collection of "reforms." This doesn't mean that it was completely useless, but the benefits were outweighed by the costs of passing the bill.

    And this last point might be one of the most important areas where we find disagreement among those seeking mortgage lending reform. My view, one not shared by the bulk of my colleagues in the House, was that passage of this weak, vanilla bill would provide the mortgage industry the evidence they needed to argue against doing anything more in 2009. This is certainly a debatable point - and I respect my colleagues whom came down on the other side of this debate - but that was my conclusion. Since the rescue mortgage and loan originator bills came from the work group and passed with overwhelming support, it's more difficult for an industry lobbyist to point to those bills as evidence that mortgage reform was complete. In contrast, had 3603A passed out of the Senate on a vote that was as split as the one in the House, then it would have been much easier for the industry to point to 3603A as "the bill that represented a tough stance against the industry" and therefore one that "took care of mortgage lending reform in Oregon."

    There are other political reasons that this effort may have been doomed from the outset, but it's not worth going over those again.

    As a member of the Consumer Protection Committee, I'm gravely disappointed that we weren't able to come out with a robust set of reforms to confront this real set of issues. Unfortunately, this problem isn't going away anytime soon.

  • Rose Wilde (unverified)

    Rep Galizio -- that is one of the more frank explanations I've gotten from a legislator. Thank you!

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    Posted by: Anon | Feb 23, 2008 1:48:03 AM The Oregon Senate refused to vote on or even hold a hearing on this mortgage lending bill. Ugh. House Democrats pass this bill with a 31-29 majority, but the Senate Democrats won't even consider it with an 18-11 majority? Ugh again.

    Ugh indeed! And therein lays the crux of this story.

    Despite having joined a party which controls the Senate with a 62% majority, Sen. Westlund was unable to make progress with his mortgage bill which enjoyed very wide support by the fine organizations Rep. Galizio mentions.

    Seeing the proverbial handwriting on the wall, the merely 51% Dem House crafted a weakened alternative bill which was obviously driven more by the intransigence of Senate Democrats than anything else. Even so, it was still stiffly opposed by the mortgage industry lobby.

    Speaker Merkley somehow managed to get HB 3603 through and then set about personally lobbying Senate Democrats to try to get it through their chamber too. But what he was able to do with the slimmest (literally) of majorities, the much larger majority Dems in the Senate have been unwilling to do.

    While I can appreciate and empathize with the explanation given here by Rep. Galizio, I disagree with his characterization of the value of HB3603 - although in fairness it's only really seen in hindsight. By HB3603 getting through the House but not the Senate, Oregonians are much, much better able to see where the legislative obstructions are than if HB3603 had never been attempted. We can now look forward to the next election and vote accordingly.

    As Dr. Rex Hagans (Coalition for Economic Fairness, Ecumenical Ministries of Oregon - Public Policy Advocacy Committee) said about Speaker Merkley after he got payday loan reform done, "Speaker Merkley is the most stand-up political leader I have ever seen. A lot of folks want to tell you how they are for the "little guy," but Jeff is the real deal!"

  • MCT (unverified)

    I work in the real estate industry and it did not escape me that during Bush-man's first term he touted "Home Ownership for all Americans". If you had a pulse you could get a home loan. And it's his 1% big biz cronies who lapped up the gravy on this one. The more I think about it, the more reports I read, I believe this mess was totally calculated out of sheer greed. Impossible for me to believe economists and bankers couldn't figure out the final outcome. They took the money and ran...now they're taking back the real estate and every dime the borrowers put down and paid in during the time they lived there. And they're in a spot to pick up some cheap devalued real estate. How likely was it that all those ARM borrowers would be able to increase their income enough to meet higher payments, or refinance within a two or three year period? Not likely when we can't even get the minimum wage up to a livable level.

    Now, not just home-buying power, but disposable income is disappearing. That's a trickle up problem folks. If you have a job that ultimately depends on someone buying a service or a product, you will NOT be exempt from the pain. So don't sit too high on that horse of yours. It's your problem too. Your job and your home might be at risk too....all you have to do is fall a little behind, your credit score to change enough to effect your ability to...be credible.

    Kari is right, you'd need a PhD. in economics to see how the fine print in many of these mortgages can come back and bite you in the butt. Right up there with bad mortgages is the credit card crime being perpetrated on card holders...one day late, or a change in credit score results in jacked up rates, huge payments, even your insurance rates go up...the monthly income suddenly not enough to cover the spread. It's all legal, there in the fine print when you signed for the card.

    We used to have usery laws in this country. Time to bring them back. This Bill in Salem is modest indeed. Too little too late. I receive notices of default ....ramping up to hundreds of them every week in the metro area. Once their homes are gone and their credit trashed, these people with crushed dreams will not even pass the muster to rent an apartment. Can you imagine how demoralizing that will be? How would it feel to live under that cloud.

    And Kari yes, some of them never will recover enough to buy another home. Especially those Boomers.

  • andy (unverified)

    And I still fail to see any problem that needs to be fixed. In the last several years I've purchased a couple of houses and a couple of cars. It really doesn't take more than 30 seconds with a financial calculator like a HP12 to figure out what the monthly payments will be given an interest rate and a purchase price. That means anyone can figure what the real payment will be in less than a minute. It doesn't matter what the sales guy tells you the payment will be and you don't have to plow thru the fine print.

    If the house is $500,000 and you're going to pay it back in 30 years at 7% then the monthy payment has to be $3326. If you get quoted something other than that then ask some question. How hard could that be? Predatory lenders can't exist without stupid customers so don't be stupid. Buy yourself a $30 calculator before you buy a $500,000 house. How difficult of a concept is that????

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    We're not talking about homes with a set rate - we're talking about adjustable rates. Some people have seen their monthly payment increase hundreds of dollars each month until its more than a thousand higher per month than the first payments. And I'm talking about people who have made all their payments, bills, etc. on time - these aren't increases because of late payments.

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    <h2>Thank you very much, Rep. Galizio, for that frank explanation. It confirms some of what I suspected and adds additional information I did not previously have. Your candor is much appreciated.</h2>
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