Holvey: Merkley leads on protecting consumers

The Register-Guard, 3/18/08

Lawmakers seeking balance in mortgage industry
By Paul Holvey

Nearly twice as many Oregonians lost their homes to foreclosure last year as in the year before. And the worst isn’t over yet.

It is clear by now that fiscally irresponsible lending practices by some in the mortgage industry, combined with consumers’ lack of understanding of the risks involved in subprime mortgages, have helped bring the nation’s economy to the brink of a recession.

Although the scope of the problem was only becoming evident at the end of the 2007 regular legislative session, many of us hoped we could act to forestall additional problems in the mortgage industry in the just-concluded supplemental session.

Gov. Ted Kulongoski formed a Mortgage Lending Work Group to review the issues involved.The group forwarded concepts addressing foreclosure rescue scams and oversight of loan originators to the state House and Senate. I’m proud to say that during the February session we introduced and passed these bills. I hope this runs these foreclosure scammers right out of the state.

But these bills did not address all the problems in the housing market. Some of us wanted to make sure that Oregonians had some protection against reinvesting in equally bad loans in the future.

To me, it was critical for the Legislature to act to protect Oregonians who will be refinancing their homes in the coming months.

As chairman of the House Committee on Consumer Protection, my biggest challenge is to navigate the complexities of such consumer issues as mortgage lending.

The difficulty is finding a balance between necessary protection for consumers and the potential for over-regulating the industry to the point where affordable mortgages become unavailable.

Sen. Ben Westlund, D-Bend, worked with consumer organizations to bring forward a comprehensive plan to protect homebuyers from unscrupulous lenders and brokers.But the bill was just too complex to be fully considered in the three-week February session. It soon became clear that the bill could not quickly get the support it needed.

I consulted with the House leadership and realized we faced a choice. We could give up and turn our backs on thousands of Oregonians unfairly locked into mortgages they cannot afford — or we could stand and fight to get something done.

We fought.

Speaker Jeff Merkley and I prepared a bill that would have limited prepayment penalties on subprime loans and would have required better disclosure of the terms and the costs borrowers pay or are included in the loan. Those were two critical provisions of the stalled reform bill.

Excessive prepayment penalties often trap consumers in mortgages they cannot afford, leaving homeowners with no choice but to face foreclosure.

Plain-language disclosure to the borrower of the costs and terms of the mortgage loan, including the compensation lenders pay to brokers, ultimately gives homebuyers better access to the information they need to make a wise choice.

Despite the obstacles we faced, the House won a bold victory. Over intense opposition from many lobbyists, and by a slim 31-29 margin, we passed those important mortgage reforms.

Unfortunately, the session adjourned without any action on this critical issue by the Senate. We heard lots of explanations: There wasn’t enough time, there weren’t enough votes, the bill went too far, the bill didn’t go far enough. Ideological purity and political expedience prevailed at the potential expense of many Oregonians who will be entering into new home loans in the coming months.

Although our bill would have provided real protections for Oregonians, some vocal consumer groups would not support it. They made their position clear: Unless the Legislature fixed all of the problems associated with the collapse of the housing market, they would not get on board.

On the other hand, industry lobbyists railed strongly against the bill — even though many states have similar laws, and the federal government is moving in the same direction. Thirty-one other states have limitations on prepayment penalties for home loans. Industry lobbyists insisted that the Legislature should not impose any regulations until there was full agreement by consumers and the industry — an almost impossible standard.

In spite of February’s disappointments, standing up for Oregon consumers is a lasting legacy for the leadership in the House. In 2007, we successfully took on payday lenders and won some solid victories for Oregonians. With foreclosure scammers on their way out, we’ll keep fighting for more protections for Oregonians.

This time, one set of advocates wanted it all, the other side wanted nothing. But in my experience, the space between all and nothing is often where good legislation happens. As long as I have the honor of chairing the Consumer Protection Committee, I will continue to look for that balance.

Paul Holvey, D-Eugene, represents District 8 in the Oregon House of Representatives.

Posted March 18, 2008
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