Veto ink spills on homeowners

In 1986, Minnesota leaders -- witnessing farmers forced into foreclosure by falling real-estate values -- enacted a Farmer-Lender Mediation law, which eventually allowed thousands of farmers to negotiate extended terms with lenders so that both parties could succeed in their financial ventures. The law simply required the lender and farmer to meet with a mediator before the foreclosure process began. It didn't create a moratorium on foreclosures. It wasn't a taxpayer bailout. It didn't keep "deadbeats" on the farm. It didn't interfere with the marketplace. It maintained an entrepreneurial financing system without creating a burden for the taxpayer.

Last year, Minnesota saw 26,000 mortgage foreclosures, the most since the Great Depression. In most circumstances, these loans were repackaged and securitized with thousands of other loans and divided among thousands of investors. This creates a problem during the foreclosure process: The lending syndicates don't have people who sit down with the homeowner to discuss making the loan work. It is far easier for the mortgage servicer, who faces little or no financial risk on a loan default, to simply let the foreclosure process begin.

At the beginning of the legislative session, I drafted legislation modeled after the 1986 mediation law. Once again, the bill was not a bailout of lenders. It was not a rip-off of the taxpayer. It didn't interfere with the ability of a foreclosure to take place. It didn't insert even a toe into the free-market economy. The bill simply required the parties to meet, usually by telephone, before the foreclosure process began to see if a fair and reasonable resolution could be found to avoid foreclosure.

The proposal, with state Rep. Debra Hilstrom and state Sen. Linda Scheid as chief authors, was enacted by the Legislature earlier this month. Its purpose was to curb the foreclosures and short sales that have destabilized home values for everyone. Its purpose was to cut down on vacant homes that become incubators of neighborhood vandalism and lead to more serious criminal activity. Its purpose was to help stabilize the economy, since, after all, real estate constitutes an estimated 20 percent of economic activity and our economic meltdown started with subprime lending.

The legislation was heavily opposed by the mortgage banking industry, including some of the same subprime lenders who threw financial prudence to the wind when they made bad loans and then racked up financial deficits that led to billions of dollars in taxpayer bailouts. Much to my chagrin, lenders like Wells Fargo -- which recently received $25 billion in taxpayer money -- were at the front of the pack in trying to thwart enactment of the bill.

Despite all the lobbying, it never occurred to me that the governor would veto the bill. After all, many of the lenders who opposed it were hardly in any position to be arguing against it.

Yet, late on the Friday night of the long Memorial Day weekend, the governor set his veto pen to the bill.

Four years ago, the attorney general's office received an average of 400 calls a day from consumers -- many dealing with bad sales practices or bad landlords. Today, our calls have almost doubled as we hear from consumers who are struggling through an economic crisis that has crept into their homes and pocketbooks and driven fear into their families -- in the form of high health care bills, unwieldy utility bills, aggressive collection agents, out-of-control credit card companies and mortgage lenders who will not even return their calls. We do our best to assist these callers, despite growing demand, budget cuts and fewer staff. Even without the mediation law, we have been successful in getting some lenders and homeowners to work together to find reasonable financial solutions to avoid foreclosure. We'll keep doing so, despite the veto.

This session was not only about taxes, cuts, marijuana and seat belts. There was more at stake for families and communities who could have been helped by the foreclosure mediation law -- and not in a way that would have cost the taxpayers another bailout. I hope that the next time the Legislature convenes, it will revisit and reenact the bill and override the governor's veto.