Although there has been a lot of noise and bluster about a comprehensive federal government response to the mortgage and foreclosure crisis, the law of foreclosure has traditionally been a state rather than a federal concern.
Now, while the federal government’s response to the mortgage and real estate crisis appears to be paralyzed by partisan politics, the States are taking the initiative in trying to protect homeowners facing foreclosure.
This could be bad news for lenders.
Minnesota, where foreclosures are expected to reach a record-setting 33,000 this year, has already taken the lead, enacting one of the nation’s strictest mortgage lending laws last year.
On Monday, Minnesota again addressed the crisis with three foreclosure bills that have been given preliminary approval in the State Senate.
One bill, the Minnesota Subprime Foreclosure Deferment Act (HF3612, SF3396) would allow homeowners with subprime loans to pay about 65 percent of their monthly mortgage payments, deferring the remainder for one year.
Homeowners would have to live on their properties during that year, and even one missed or late payment could restart foreclosures.
Another bill would erase eviction notices from the records of renters removed from foreclosed properties.
The third bill would help authorities to declare vacant properties abandoned so new owners could take over faster.
Our guess is that more States will follow Minnesota in passing laws to make it increasingly difficult to foreclose on mortgage holders. Especially in an intense election year, the politics of foreclosure do not favor lenders over delinquent homeowners.
Unless a national consensus is quickly reached on dealing with the rising tide of foreclosures — and we believe this is unlikely to happen when presidential candidates are competing for votes based on whose plan is best for dealing with the mortgage and real estate crisis – we think lenders can expect to fight individual battles over foreclosure in all 50 States.
Given the negative publicity that lenders have had in the media, and with a bitterly fought presidential election on the horizon, these are not battles that the lenders are likely to win.