Lawmakers hunt foreclosure answers

ST. PAUL - Lawmakers are looking at ways to find more time and other help for Minnesotans caught in a mortgage squeeze.

Legislators have introduced at least a dozen bills to ease the burden of Minnesota homeowners facing problems paying mortgages bigger than they can afford.

The bill that would do the most, and thus is the most controversial, would encourage borrowers and lenders to negotiate smaller payments for the next year, until the federal government can take action on what is widely called a mortgage crisis.

The bill is "to help us get a handle on and provide some relief to the wave of mortgage foreclosures that is sweeping across our state and our country," Sen. Ellen Anderson, DFL-St. Paul, said.

More foreclosures are reported now than any time since the Great Depression, Anderson added.

Requiring lenders to allow lower payments means "there would be a balance, there would be a shared responsibility," she said.

However, she added: "The responsibility of the borrower remains."

At least a lender would get some money from borrowers under this bill, she said, quickly adding that "it doesn't solve the problem permanently."

Anderson estimated that the bill would help about 15,000 Minnesotans who otherwise would lose their homes this year.

Rep. Jim Davnie, DFL-Minneapolis, who authored the House version of the bill, said the proposal gives what troubled borrowers need - more time.

"This is a bold proposal, but takes a very reserved and balanced approach," Davnie said.

Davnie said the measure has a good chance of passing, but he and Anderson still are trying to find compromises with opponents like lenders.

Professor Prentiss Cox of the University of Minnesota Law School, who helped draft the bill, said if a borrower misses just one payment, the measure's protection would be lost.

"We are talking about people already in foreclosure," Cox said. "They are people who already cannot make their payments."

The law only needs to last a year, he said, because federal authorities should take action by then.

"The point of this bill is the environment will look different a year after it is passed," he said.

However, Davnie said, if the federal government does not act, state lawmakers may need to take more action next year. He would not discuss what further action may be needed.

Sen. Mary Olson, DFL-Bemidji, was concerned that borrowers taking advantage of the bill will be surprised when they need to pay the full deferred amount next year.

"It is going to hit them like a big bang at the end of the 12 months," she said.

Anderson admitted some borrowers facing foreclosure are not dealing with reality.

"We have heard over and over about people in denial. ... I don't know whether we can reach them or not," she said.

Bankers do not like the bill.

"Banks are helping people already," said Steve Johnson of the Minnesota Bankers' Association. "We don't go into the foreclosure process lightly. It is a last resort."

Johnson said bankers have helped 6,000 Minnesotans with mortgage problems in the past year "without any type of government participation."

The existing foreclosure process takes at least nine months, he said, and often reaches 14 months. Johnson called it a "very long, consumer-friendly foreclosure process."

That long process already gives borrowers time to deal with their financial situation, bankers said, and a new law is not needed. Bankers are working with the Minnesota Home Ownership Center to let borrowers in trouble know there is counseling available.

"Anyone who may be going into foreclosure will have time to take advantage of whatever Congress is expected to do," said David Skilbred of the Independent Community Banks of Minnesota.

Bankers also fear that the measure could become permanent, like a "temporary" 1980s law to help farmers ensnared in a farm crisis. The law remains on the books.

"We get very concerned that with that kind of an example, this becomes permanent," Johnson said.

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People living in manufactured homes - what used to be called mobile homes - also face problems. Chip Halbach, Minnesota Housing Partnership's executive director, said the 50,000 families in manufactured homes would not receive the same help under the Davnie-Anderson bill as owners of traditional homes.

"If they run behind in payments they can lose a home in as little as 30 days," Halbach said. "We won't be able to change it in a single year, but want to give them a little more protection."

Bills being considered would provide another two months for manufactured home owners to catch up with late payments.

Other related bills advancing through the Legislature include ones to:

-- Require foreclosure data to be electronic, which supporters say would allow a quicker response to mortgage problems.

-- Protect tenants in buildings where the owner faces foreclosure actions, in part by letting them know when foreclosure proceedings are under way.

-- Speed up foreclosure-related notices.

-- Facilitate early use of foreclosure prevention counselors to home buyers facing mortgage problems, going so far as providing the buyers' telephone numbers to counselors.

-- Streamline the process that turns abandoned properties back to lenders.

State Capitol Bureau reporter Marisa Helms contributed to this story.