Ellen Anderson and Jim Davnie: We can't stand by as people lose their homes

Legislators are poised to take action that will help. The governor should join us.

By ELLEN ANDERSON and JIM DAVNIE

Last update: April 7, 2008 - 8:04 PM

By the time you end your day with the late local news or one last bedtime story, 100 Minnesota families will have been forced out of their homes due to foreclosure.

A hundred families.

The depth of Minnesota's foreclosure crisis continues to wreak havoc on families, communities and the broader economy. Even staunch free-market-solution advocates have recognized that the cost to society of runaway foreclosures and bankruptcies has become too much to bear.

Legislation pending in the state House and Senate would take strong and immediate action to prevent many of these foreclosures by encouraging lenders to work with borrowers to restructure subprime loans and by allowing a narrowly targeted group of homeowners to defer foreclosure proceedings for one year.

Unfortunately, Gov. Tim Pawlenty has indicated that he is likely to veto this legislation because of concerns that it may have unintended effects on credit and interest rates.

We disagree. Homeowners who don't face foreclosure are already feeling the negative impact of the current crisis. Record drops in home sales and steep declines in home values have destabilized Minnesota's economy, and foreclosures have depressed neighborhood property values. As a result, residents still in their homes are unable to sell them or must take far less than the price they paid. Compounding the problem, the number of homes on the market, including a glut of unsold foreclosure properties, puts additional pressure on prices, further dropping home values. The accompanying crisis in confidence impedes the lending industry, which in turn destabilizes financial markets and depresses retail sectors -- all accelerating a vicious cycle that's brought Minnesota into recession.

Minnesota is ranked second nationwide in the number of per capita foreclosures among subprime borrowers, with 37,000 foreclosures projected through the rest of 2008. That number is the highest since World War II and is quickly approaching levels not seen since the Great Depression.

While the governor has threatened to veto deferral legislation, he did open the door to establish a mediation process similar to the successful Farmer Lender Mediation Program. Such an approach could serve as a framework for legislation that could be enacted this year to help homeowners and lenders. Any legislation would have to include incentives to compel representatives of the lender to negotiate in good faith with homeowners toward an affordable outcome.

Last year, Minnesota served as a model of consumer protection by passing stringent loan requirements and nation-leading laws against predatory lenders. Today's case for state action is even more compelling. Many homeowners who have been victims of deceptive lending could stay in their homes. Neighborhoods wouldn't suffer the potential blight of numerous foreclosures. The free fall in housing prices could be slowed and lender losses diminished -- all providing a foundation for an economic turnaround.

America's dream of homeownership is quickly turning into a nightmare for too many Minnesotans. The wave of home foreclosures is among the most-urgent issues we will address this year. We hope the governor shares this sense of urgency to work on a solution.

Ellen Anderson, DFL-St. Paul, is a member of the Minnesota Senate. Jim Davnie, DFL-Minneapolis, is a member of the Minnesota House. They are coauthors of the Minnesota Subprime Foreclosure Deferment Act of 2008.

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