ST. PAUL, Minn.–Credit unions have been bracing themselves for moratoriums in 2009 on foreclosures, but despite all the rhetoric no state has yet to pass any such legislation. Analysis by American Banker, an affiliate of Credit Union Journal, found that none of the initiatives announced to date, including those in Minnesota, New York, Michigan, and California, have resulted in legislative action. Still, observers expect the foreclosure issue to emerge again in many states next year, when millions more subprime mortgages are poised to reset at higher rates.
Several states, including Georgia, Pennsylvania, and Maryland, gave borrowers more time to work out modified payment plans with their mortgage lenders, and at least a dozen, including Texas, Arizona, and Florida, enacted laws to combat fraud by people claiming to be foreclosure consultants.
However, some lawmakers and industry participants see state-mandated foreclosure moratoriums as doing more harm than good.
In June, Gov. Tim Pawlenty of Minnesota, a Republican, vetoed a bill to freeze foreclosures in his state, saying it would make mortgages more expensive by forcing lenders to consider the “additional business risk” of nonpaying borrowers when making future loans.
“This will negatively impact the credit market in Minnesota by increasing interest rates for Minnesotans who are trying to refinance or purchase a new home,” he wrote in a veto letter.
Heather Morton, an analyst at the National Conference of State Legislatures, said lawmakers held off imposing freezes this year to gauge whether other measures, such as increased funding for emergency assistance and loan modification programs, might stave off foreclosures. “States were very active trying to help their constituents without making credit more difficult or shutting down the market altogether,” Morton said.
For example, last month Florida announced agreements with lenders to freeze foreclosures voluntarily for a 45-day period, starting Dec. 1. Several companies, including Bank of America Corp., Citigroup Inc., Marshall & Ilsley Corp., and Webster Financial Corp., have their own voluntary moratoriums for a limited period.
However, modification programs appear to be yielding poor results. Comptroller of the Currency John Dugan noted this month at a conference for federal regulators that more than half the loans modified in the second quarter were 30 days past due within six months of being modified.
Last month Gov. Arnold Schwarzenegger of California, a Republican, revived a bill to impose a 90-day moratorium on foreclosures there. The California Legislature has yet to act the bill, which has a number of opponents.
–Katie Kuehner-Hebert
