Pawlenty May Veto Foreclosure Moratorium Bill

by Alex Stenback on April 3, 2008

From the Star-Tribune, reporting that governor Pawlenty will "probably" veto the Foreclsoure Moratorium bill currently winding it’s way through the State Legislature:

Pawlenty said he is concerned about the potential effect on credit for the entire Minnesota mortgage market.

"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.

For those unable to read between the lines here, what the Governor is getting at is this:  If Minnesota is going to pass legislation that invalidates a lender’s contractual right to foreclose, these same lenders might not be so eager to issue mortgages around here, or at the very least may charge some Minnesota borrowers a premium – call it a Legislative Risk Adjustment – in the future.

To be fair, the moratorium targets owner occupant, sub-prime borrowers, so it remains to be seen whether a bill like this will meaningfully impact the pricing and/or costs for the "other 98%" of borrowers, but it is a real risk.

Also, the proposed moratorium may have costs beyond "higher future rates."  That’s because interest, penalties, and tax bills continue to accrue, and are not forgiven (only deferred) under this bill.  The borrowers are still on the hook after the moratorium expires – and precious few will be able to pay then what they can’t pay now.

The end result is after the moratorium expires, the lender and/or the borrower will be stuck with an even larger loss.  That may well have costs for us all in the form of a direct taxpayer bailout, of some form or another, at the State or Federal level.

In that sense, what’s being billed as a "solution," just isn’t. All we are really doing is deciding who to foreclose on now, who to foreclose on later, and increasing the cost of the end game.
Proposed Freeze on Foreclosures Runs Into Obstacle [Strib]
Previous Coverage of this topic at BTM:
MN May Pass Nations Strongest Foreclosure Moratorium [BTM]
More on Foreclosure Moratorium [BTM]

{ 1 comment… read it below or add one }

Aaron Dickinson - Edina Realty April 3, 2008 at 11:23 pm

That bill is about one of the most dangerous things that the state could pass. I hope Pawlenty does veto it.

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