Deadlock blunts work on rules for mortgages
Lending - Deep differences on consumer protection and subprime home loans mean a legislative reform panel makes little headway

Saturday, November 17, 2007
JEFF MANNING The Oregonian Staff

Three consumer groups are blasting mortgage industry representatives on a state work group charged with crafting mortgage reform legislation, accusing the industry of "blocking exploration of basic consumer protections."

Though they've agreed on certain limited issues, work group members are deadlocked on the central issue of lending practices. Mortgage professionals on the panel accuse consumer groups of exaggerating the scale of the expected foreclosures on high-risk loans.

The work group will continue to fine-tune its proposals for the upcoming interim Legislative session that begins in February. But its split means that the legislation it proposes to the interim Legislative session in February will likely be modest in scope. Meanwhile, Sen. Ben Westlund, D-Tumalo, vows to introduce tough new mortgage reform legislation regardless of the mortgage work group's position. Westlund said Oregon consumers have more legal protection when buying a used car than when they're buying a house, a situation he wants to change.

Gov. Ted Kulongoski formed the mortgage work group in September, saying he wanted to protect Oregonians from bad loans and foreclosures. He acted a month after the national industry was thrown into deep turmoil by mounting mortgage delinquencies and foreclosures. The surge in defaults came after a wild five-year spree of lending, when the industry dispensed with many traditional notions of creditworthiness and made billions of dollars worth of subprime loans, most of which are now becoming significantly more expensive as their interest rates adjust upward. Oregon's default rate, while rising, remains far below that of boom states such as California and Florida.

The Oregon group was riven by deep differences from the start. Industry representatives said the consumer groups' warnings of a coming wave of foreclosures here were overblown. They argued that mortgage lenders have already been forced by the market turmoil to move away from the aggressive loans that got some borrowers in trouble.

Putting additional restrictions on the industry now could actually hurt people trying to get out of unaffordable mortgage loans, said Eric Wiley, chief operating officer at Pacific Residential Mortgage of Lake Oswego and a member of the working group.

Consumer groups were livid. The industry "used the meetings as an opportunity to exercise its veto power," said Angela Martin of Our Oregon, a nonprofit at the forefront of the calls for additional mortgage regulation. "Instead, they proposed absolutely nothing."

Our Oregon, the American Association for Retired Persons and OSPIRG slapped the lending lobby in a Thursday letter to Kulongoski, saying industry representatives "subverted the governor's request for a good-faith consensus approach."

Our Oregon is working closely with the Center for Responsible Lending, a North Carolina group that has fought for mortgage lending reform nationally. The group says subprime loans -- championed by the industry as a means to put the poor and credit-impaired into homes -- has actually been a net drain on homeownership.

The Center for Responsible Lending projects that more than 17,000 of the 88,500 subprime loans in Oregon will go into foreclosure over the next five years.

The industry's representatives say those numbers are inflated and irresponsible.

The industry does concur with estimates from a national title company that over the next 18 months, more than 15,400 non-prime mortgage loans in Oregon will have their interest rates adjust upward, increasing the monthly payment by hundreds or even thousands of dollars.

"Even those numbers warrant concern," said Cory Streisinger, director of the Oregon Department of Consumer and Business Services, which staffs the work group.

The industry did agree with consumer groups to recommend strict new controls over mortgage foreclosure counselors and so-called mortgage rescue operations. In some cases, foreclosure counselors and rescuers gain ownership of homes.

The work group also agreed that state regulators need additional enforcement powers to ban individual mortgage brokers from the business. Currently, the state can penalize companies but has very limited powers to take action against individuals,

Westlund and Streisinger agreed that the three-week interim session is too short for the mortgage issue to be fully addressed. "We certainly expect lending practices to be on the table in 2009," Streisinger said.