.ST. PAUL (AP) – The centerpiece of Democrats’ solution to the foreclosure crisis appeared to be in trouble Tuesday when Gov. Tim Pawlenty said he would “probably” veto legislation to put off foreclosures for a year for 15,000 homeowners.
Pawlenty said he is concerned about the potential effect on credit for the entire Minnesota mortgage market. He made the comments at a news conference where he announced a federal grant to beef up the ranks of foreclosure counselors and a privately funded bridge loan program for homeowners at risk of foreclosure.
“Even though the concept is well-intentioned, it could have some pretty significant unintended consequences for the 98 percent of the credit market that are not in foreclosure,” the GOP governor said.
Pawlenty added: “Minnesota would be the only state in the nation to do that, and there would be a reason nobody else has done that.”
The “Subprime Mortgage Foreclosure Deferment Act” would freeze foreclosures for a year for homeowners with subprime loans, given to those with low credit scores and incomes. A smaller set of buyers who got negative amortizing loans – where interest builds up faster than the monthly payments – could also qualify.
Sen. Ellen Anderson, the bill’s Senate sponsor, said the freeze would buy time for Congress to pass federal foreclosure aid to help the homeowners keep their homes. She said she wants to work with Pawlenty to address the crisis in Minnesota.
One possibility Pawlenty mentioned: Mediation. Anderson said mediation would have to be mandatory or Wall Street financiers wouldn’t come to the table.
“The governor seems to me more concerned about protecting the same investment firms that got us into this global economic crisis,” said Anderson, DFL-St. Paul. “What we need to be doing is figuring out a real plan to save people’s homes.”
The number of foreclosures in Minnesota is on pace to reach 29,000 to 37,000 this year, after taking big leaps in recent years. Pawlenty said the state ranks 12th nationwide for the number of foreclosures – and second for its per capita rate of foreclosures among subprime borrowers.
Commerce Commissioner Glenn Wilson said part of the problem is Minnesota homeowners’ strong reputation for repaying debt, which made securitized loans from the state more attractive to investors and contributed to an environment where borrowers could get loans without demonstrating their ability to pay them back.
A vote on the foreclosure freeze bill could get a vote in the House as soon as Wednesday, after seven smaller foreclosure-related bills sailed through with little or no opposition on Tuesday. The approved bills would add protections for renters in foreclosed properties and owners of mobile homes trying to avoid repossession.
The National Foreclosure Mitigation Counseling Program announced in February that it was giving Minnesota $4.3 million to double the number of foreclosure counselors. Pawlenty said the extra counselors will prevent 7,500 foreclosures this year.
Foreclosure counselors act as intermediaries between homeowners and lenders, helping them freeze interest rates, extend their mortgage or tack on late payments so they can keep their homes.
The governor also announced a $500,000 donation from Marquette Financial Companies, a private company owned by Carl Pohlad and his family. That pot of money will be used to offer loans of up to $5,000 per family to help homeowners avoid foreclosure.
