Ohio’s LaTourette Safeguards State Foreclosure Laws

National Banks Prevented from Preempting State Laws on Sub-prime Mortgages

COLUMBUS, OHIO: An amendment offered Tuesday by Ohio Congressman Steven LaTourette, R-OH, that would prevent national banks from preempting state laws on subprime mortgages was adopted by the US House of Representatives into a broad-brush $30 billion housing bill that would help refinance sub-prime mortgages and provide tax credits and other incentives aimed at preventing foreclosures.

Adopted by a vote of 256-160, the amendment, co-authored by Brad Miller, D-NC, was added to a housing, foreclosure and sub-prime mortgage bill authored by Rep. Barney Frank (D-MA), chairman of the House Committee on Financial Services, known officially as The American Housing Rescue and Foreclosure Prevention Act of 2008, H.R. 3221, clarifies that national banks will not be able to ignore or bypass state foreclosure laws, which the industry has been making arguing it might be able to do. The bill itself passed 266-154.

President Bush has threatened to veto the bill. The White House and bill opponents say it will be a bailout for investors and speculators who bet the market would go up, and when it went down now want taxpayers to come to their rescue.

STATE FORECLOSURELAWS RULE

“We just wanted to set it in stone that foreclosure is a state matter and that national banks can’t dodge state laws,” LaTourette said in a media release to ePluribus Media OhioNews Bureau. “If a bank feels a state foreclosure law is too aggressive or punitive, they can work with state legislators to change the law or take the matter up in court.”

LaTourette’s amendment clarifies that foreclosure is the domain of states and there is no federal foreclosure statute or standard. Concern was rising that national banks would try to use the passage of H.R. 3221 as ammunition to skirt state laws even though the bill does not establish a federal statute on foreclosures.

In response to the recent wave of sub-prime mortgage foreclosures, LaTourette said states have established foreclosure prevention funds, strengthened anti-predatory lending and foreclosure laws, tightened regulation of mortgage brokers and loan originators and increased penalties for mortgage fraud. He added that states also are leading efforts to connect troubled borrowers to resources like financial counseling and homebuyer education that can help avoid or mitigate the impact of foreclosure.

Massachusetts Congressman Barney Frank, the bill’s sponsor and manager of the Democrat’s campaign for the bill on the House floor, said he spoke with independent and mortgage bankers who told him that if the LaTourette language was adopted, “they would accept it and not seek to defeat it.”

What LaTourette’s amendment does, besides again emphasizing that the sole domain of foreclosure laws rests with state and not the federal government, is tell banks that, unlike their cousins in the credit card industry who have been able to preempt themselves from some state laws, they are subject to state foreclosure laws and that if they don’t like them, they can fight it out with each state whose laws they don’t like.

CREDIT CARD COMPANIES CAN PREEMPT STATE LAWS

The issue on whether and how much national banks and thrifts must comply with state laws designed to delay or prevent foreclosures was covered by Cheyenne Hopkins in April at On Wall Street. Hopkins wrote that “unlike consumer protection laws, state foreclosure and real estate property laws generally are not preempted. But if such a law affects the substance of a loan — or interferes with the bank's ability to collect a debt — the issue becomes murkier” and “that discord has left national banks and thrifts struggling to know what terms they must follow as a growing number of states consider or pass foreclosure prevention laws.”

As of April, when Hopkins posted his article, only Maryland has passed a foreclosure prevention law, but seven other states have such bills pending. What concerns banks and thrift is how far state statutes will go in delaying them from foreclosing on a property.

While concern is seen with potential laws in states like Connecticut and New Jersey, where borrowers could obtain a six-month delay on foreclosures or New York and Michigan, which have called for a yearlong moratorium, real fear of what a state might do is palpable in Minnesota, where a law would allow a “struggling borrower to make monthly payments equal to the minimum monthly payment when the loan was originated or 65 percent of the monthly payment at the time of the default, whichever is smaller.”

Such extremes, observers say, would go to far, entering territory that would enable lenders to call for preemption based on the laws affect on how they do business.The controversial issue was addressed on Credit Slips by Elizabeth Warren, who wrote this: “Pre-emption has been a gravy train for the national banks, insulating their credit card business from state laws. Some banks now want another ride on the pre-emption train, claiming that they shouldn't have to follow local foreclosure laws when they take people's homes.”

“But in the past few weeks, national banks have started making a new argument: state laws are pre-empted whenever a national bank holds the mortgage, so the states can't make them follow the local rules. Pre-emption has been used successfully by the credit card companies to fight off state regulation, so now the banks want to escape local restrictions on foreclosure as well.”

Warren says the audacity of banks in this issue is “stunning,” because should they succeed here, “would banks be free to do whatever they wanted?” She adds, “And if the argument works here, where else does it work? Are the banks free to flaunt all state laws?

OHIO FORECLOSURE INITIATIVES

Ohio Gov. Ted Strickland has formed a home foreclosure task force as a tool to both staunch the bleeding home foreclosures have caused in the Buckeye State and to engage in proactive efforts to educate and counsel borrowers on buying homes.

Of the seven counties in Ohio’s 14th Congressional district, Debra Setliff, LaTourette's chief spokesman, told ePluribus Media OhioNews Bureau that a 20 percent increase in foreclosures has been seen, and that in Lake County, where the rate of home “mitigations” has risen from five per month last year to 50 per month this year, another 7,300 adjustable rate mortgages are ready to adjust upwards. Setliff said that 73 or Ohio’s 88 counties experienced increases in the number of home foreclosure filings in 2007 and that the number of filings jumped by 20 percent or more in 46 counties.

As reported in March of 2007 by the non-partisan economic research organization Policy Matters Ohio on the big jump in home foreclosures, Ohio’s crisis worsened in 2006 when 79,072 new filings for foreclosure were seen, representing 15,000 more or a 23.6 percent jump from 2005. PMO’s report said filings grew by double-digit rates in 68 or Ohio’s 88 counties in 2006 and nearly quintupled statewide since 1995. Cuyahoga County, part of which is in LaTourette’s district, led Ohio in foreclosure filings per person.

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