lend011907

On the homepage

Health care

Health care bill stuck on Democrats' infighting

Out There

Crimefighting

Video advances are a big crime-solving aid

Mental health

A 'national crisis' of student suicide

Home | Politically Connected

Group urges tougher lending laws

The panel of officials and bankers called for laws to help keep home buyers from getting loans they can't repay.

By Conrad Defiebre and Jim Buchta, Star Tribune

Last update: January 18, 2007 - 10:05 PM

Responding to recent spikes in mortgage foreclosures, a study group convened by state Attorney General Lori Swanson called Thursday for new laws to rein in lending practices that victimize home buyers and secondary mortgage financiers.

"These are surprisingly common-sense proposals, what any reliable, prudent lender would do," said the group's chairman, University of Minnesota Law School Professor Prentiss Cox. "But it's not happening on a consistent basis in the marketplace."

The panel urged new state felony penalties of up to two years in prison and a $75,000 fine for knowingly making "grossly unsuitable" loans to consumers, with additional sanctions when the victims are disabled or elderly.

The proposed law would cover loans that borrowers show no ability to repay and those based on false statements of borrowers' financial means.

Other recommendations would require lenders to give borrowers more complete information upfront and force borrowers to get loan counseling before refinancing certain subsidized mortgages.

Action is needed because Twin Cities foreclosure rates have tripled from historic levels in the past two years, the report said.

And a growing prevalence of nontraditional mortgages -- adjustable-rate, interest-only, subprime and equity-based, to name a few -- indicates the problem may worsen as more homeowners struggle to meet their payments, it added.

Who's to blame?

The panel, dominated by DFL public officials and bankers, blamed many of the woes on lax enforcement by Republican Gov. Tim Pawlenty's Commerce Department and weaker oversight of independent mortgage brokers than of banks.

Commerce spokesman Bill Walsh denied the allegations and criticized Swanson, also a DFLer, for not including the department in the study group.

"It's illogical that we weren't asked to participate," he said. "We disagree with their charges and we've got the enforcement actions to back it up."

He said the agency has shifted resources to mortgage industry regulation as foreclosures have mounted and added: "The problem is new and government is always behind the market. But we're reacting."

Pat Martyn, executive director of the Minnesota Association of Mortgage Brokers, said his group also was not involved in the Cox report and he criticized what he called its omissions.

He said he is wary of eliminating mortgage products that make home ownership available to so-called "emerging markets," particularly immigrants and rural Minnesotans.

In search of accountability

Despite his reservations about Thursday's report, Martyn said mortgage brokers will support legislation to make the industry more accountable.

"The Minnesota mortgage market has to be above reproach," he said. "We are heartbroken to see the amount of fraud that exists within the industry and we are absolutely committed to making sure that the Minnesotans retain their credibility in the face of a real estate transaction."

Kris Wilson, senior loan officer with Summit Mortgage in Bloomington, urged Swanson to involve mortgage lenders in drafting legislation to ensure that marginal borrowers don't lose access to home ownership.

"Legislation alone won't solve the problem," Swanson said. "But self-regulation has clearly failed in this industry."

Legislators on the panel said bills reflecting the proposals will be introduced soon.

cdefiebre@startribune.com • 651-222-1673 jbuchta@startribune.com • 612-673-7376

Recent Politically Connected stories

Senate Republican says there is no support for Democrats' financial reform plan - January 18, 2007

Senate Republican says there is no support for Democrats' financial reform plan - Senate Republicans said Tuesday there is no support within the GOP for the financial overhaul plan outlined last week by Democrats, putting on shaky ground a top priority for President Barack Obama. More

Comment on this story | Be the first to comment | Hide reader comments

The Whistleblower blog has moved

The Star Tribune is still blowing the whistle, but our look and location have changed. Click here to get to the new blog. If you want the actual URL, it’s www.startribune.com/blogs/whistleblower.html. Our blog posts will now be easier to search on the web site, but you’ll need to register to post a comment. In the [...]

No resume? No problem!

Create a skills profile in minutes, let a recruiter match you to an open position. Click here to get started.

Open positions!

A new career awaits. Look through thousands of listings to find your new job. Start now!

National Politics

President

U.S. Senate

U.S. House

In Congress

State Politics

Local Politics