In a move that political analysts say could hurt Tim Pawlenty’s VP chances, the governor vetoed the Foreclosure Deferment Bill on Thursday. The measure would’ve kept nearly 15,000 Minnesotans from losing their homes by giving them the time and authority to renegotiate their loan terms while they make a required good-faith effort to pay. Pawlenty claims the temporary foreclosure freeze would make credit more expensive an add an “additional business risk into mortgage agreements.”
U of M professor Prentiss Cox, a former assistant attorney general who helped create the bill with Sen. Ellen Anderson (DFL-St. Paul), says Pawlenty’s reasons for killing the bill are short-sighted. “This is a false allegation in this context, in my opinion,” Cox says. “There is no substantial subprime or negative amortization mortgage credit being issued to homeowners right now. A law can’t have an impact on credit that doesn’t exist.”
The bill would’ve required homeowners with a subprime or negative amortization loan originated before August 1, 2007 to pay either 65 percent of the payments due when the loan defaulted, or the minimum monthly payment when the mortgage was first created, whichever is less, for a one-year foreclosure-deferment period.
The bill’s originators created the plan as a stop-gap to state foreclosures before the federal government implements a solution to the growing crisis. It would’ve been the only law in a series of subrpime-crisis legislation that would provide relief to homeowners in the foreclosure process. So far, Minnesota has been at the forefront of creating anti-predatory-lending laws that make certain types of mortgages illegal and require tougher standards for mortgage brokers.
“This notion that lenders will refuse to make financially sensible mortgage loans of a different character in the future based on Minnesota helping subprime borrowers now can accurately be described as a threat of class warfare,” Cox says. “It may make good, if divisive, politics — inciting fear in the affluent against homeowners in need — but it doesn’t make sense from a market perspective. And such threats, which are consistently made against any proposed laws designed to help consumers in the financial services area, have a track record of being wrong.”
Pawlenty is no stranger to the mortgage industry. During the 2006 election, his top contributors came from the real-estate sector. Those who listed their employers as commercial banks make up Pawlenty’s third-largest group of donors.