Posted: Wednesday, February 6, 2008 12:00 am
The legislature is being asked to pass a new law on home loans. First it must ask: Is this necessary?
At issue is Senate Bill 1090, sponsored by Sen. Ben Westlund of Bend, a former Republican, then an independent for a while and now a Democrat. The bill would ban home loans unless creditors and brokers "reasonably believe" that the borrower can make the scheduled payments along with all the other costs associated with home ownership.
That sounds like just common sense. But the bill goes further. Among other things, lenders would have to check the borrower's ratio of monthly debt to monthly income. And if a so-called subprime or nontraditional mortgage is granted when it turns out that the borrower owed more than 50 percent of his monthly income, the lender or mortgage broker would be in trouble.
The provisions of the bill would be subject to enforcement by the state, and if violations are found, civil penalties of $50,000 each may be imposed.
Creditors could also be sued by the attorney general and by the borrowers themselves.
No wonder that mortgage businesses regulated by the state don't like this bill. It seems to put all the burden of regulation on them, none on the customer who is asking for the money.
The concern is all about those subprime or nontraditional home loans, many of them apparently taken out for refinancing. According to a table published by the Oregon Center for Public Policy in Silverton, about 25 percent of all Oregon home loans made in 2006 were in the subprime category. And yet last year, Oregon is said to have had the third-lowest foreclosure rate on home loans in the country. So what's the problem?
The Portland Oregonian printed the sad story of a mentally disabled man on $624 a month in Social Security who responded to cold-call offers to refinance the house he had inherited free and clear. Now he faces foreclosure. The loan documents say he makes more than $3,000 a month, but he says he didn't sign that false statement. In this case the problem seems to be out-and-out fraud. We already have laws against that.
If the legislature wants to do more, it could simply pass a bill outlawing home foreclosures based on loans in which fraud played a role. (hh)