Senators to Borrowers: Drop Dead

[February 27th, 2008]

When considering the Oregon Senate’s abject failure to do anything in the just-concluded special session to protect people seeking new mortgages, it’s helpful to consider some numbers.

This year, for instance, the advocacy group Our Oregon says 15,000 Oregonians’ adjustable-rate mortgages will “reset” to sharply higher rates that will cause many to hunt for new mortgages.

But will those potential borrowers enjoy any more protection than before this month’s legislative session from pre-payment penalties, or brokers who have incentives to rip them off?

The answer: an emphatic “no,” according to AARP Oregon, OSPIRG, Our Oregon and the Oregon Center for Public Policy, all of whom pushed for the Democratically controlled Legislature to enact lending reforms.

“Borrowers are no better off today than they were before the session began,” says OCPP director Chuck Sheketoff.

Lawmakers did pass bills that protect existing homeowners from foreclosure and that will require more reporting from mortgage originators. But neither helps new borrowers.

And protecting borrowers is important because the North Carolina-based Center for Responsible Lending expects 28,000 Oregon homes will go into foreclosure, primarily in 2008-2009. The center, which issued state-by-state projections last week on the impacts of foreclosures, says those foreclosures will contribute to a statewide decrease in Oregon home values of $2.5 billion .

Many of those foreclosures will result from subprime loans, which according to OCPP figures accounted for a quarter of all new Oregon mortgages in 2006.

Yet, when Sen. Ben Westlund (D-Tumalo) introduced a comprehensive lending-reform bill in the Senate a couple of weeks ago, the measure died without a floor vote.

House Speaker Jeff Merkley (D-Southeast Portland) revived a stripped-down version of Westlund’s bill and coaxed it through the House, where D’s only have a 31-29 edge, with the help of three Republican votes.

Merkley’s bill contained a limitation on prepayment penalties similar to those in 30 other states and a requirement that brokers disclose all compensation rather than hiding various fees and kickbacks

In the Senate, however, where D’s enjoy an 18 to 11 majority (one, Avel Gordly, is an independent),leadership bottled Merkley’s bill up in committee, also denying it a floor vote.

Senate Majority Leader Richard Devlin (D-Tualatin) concluded after surveying colleagues that the bill simply lacked the votes to pass. Devlin says he would have liked to have helped borrowers. But he didn’t think floor discussion of a bill that might fail was a productive use of the chamber’s limited time.

Merkley, who is running in the May 20 primary for U.S. Senate, doesn’t like that answer.

“Thousandsof Oregonians’ financial futures are at stake,” Merkley says, referring to those whose mortgages reset this year and could have been helped immediately by his legislation. “The teaser rate is the bait and the prepayment penalty is the trap that chains them to exploding mortgages.”

But Senate Democrats ended up punting the issue to2009, which means thousands of new loans will include prepayment penalties and will lack full disclosure of how the mortgage broker is compensated.

“It’s enormously disappointing,” Merkley says.