On Wednesday Robert Doggett, in response to an invitation from the committee, testified on the behalf of TxLIHIS before the Texas House of Representatives Financial Institutions Committee. The committee was conducting an interim hearing on an interim charge to:
“Monitor federal rules and regulations on lending and determine the state’s role in regulating issues that relate to the mortgage foreclosure process, disclosures for loan terms, home equity, mortgage brokers, mortgage bankers, consumer protections, and counseling for mortgage products.”
The lead-off witness before the committee was Dr; James Gaines of the Texas A&M Real Estate Center who’s testimony provided an overview of the foreclosure crisis in Texas. Dr. Gaines stressed the fact that Texas was not as bad off in terms of foreclosures as a number of other states. I will try to post Dr. Gaines presentation tomorrow along with his slide presentation. While I personally think he spent too much time on the relative foreclosure levels and not enough exploring the causes and costs, none the less his presentation is most interetsing.
As for Doggett’s testimony on our behalf, he made eight about the foreclosure crisis that we strongly support.
1) Don’t buy the argument that this is not much of a problem in Texas
In his testimony on the behalf of TxLIHIS and low-income consumers Doggett took aim at the fact that the lending industry continues to tell legislators to do noting to help families losing their homes to foreclosures. He noted that lenders saying that the Texas foreclosure crisis is not as bad as in many states is little comfort to the thousands of Texas families facing foreclosure each month. Texas had the highest rate of foreclosure among states in 2005 and the number have grow far larger. The fact that other states have an even worse problem should not be an excuse to do nothing.
2) Mortgage brokers should disclose the best available loan
Doggett also suggested that mortgage brokers be required under state law to tell a borrower they are working for if a less expensive and better loan is available to them than the one that the mortgage broker is recommending. Currently mortgage brokers have no obligation in Texas to do so. And the pressure to push a borrower into a loan from a lender who pays the broker a higher fee provides a strong negative incentive for the broker to do what’s right for the borrower.
3) Don’t buy the argument that it is all the borrower’s fault
Doggett criticized the effort of industry and opinion leaders to lay the blame for the foreclosure crisis solely on the borrowers. What about people who had good credit but were steered into bad loans by mortgage brokers or unscrupulous financial institutions seeking to maximize their profit? What about home buyers who were told by lenders to accept the ARM because “in a couple of years you can refinance out of it” only to find out that that was not possible? Doggett’s point: while part of the fault does lie with the borrowers there are lending practices and lending products in Texas today that in trap borrowers in a loan they cannot afford. The Legislature needs to put a stop to it.
4) Federal preemption fears should not prevent state action
Doggett challenged industry claims that the state was preempted under federal law from passing legislation to provide protection to borrowers. He pointed to a number of times that the Texas Legislature has acted to regulate unconscionable borrowing practices that are in theory “preemptible” by federal action. In these cases the federal government has never acted to overturn the state protections.
5) Provide pre loan counseling to those considering risky loans
Doggett pointed out that the House Financial Institutions committee passed a bill last session that Doggett and the Texas Low Income Housing Information Service helped author that would have required a borrower to receive HUD certified housing counseling prior to entering into a high-risk loan. Unfortunately, the bill died before the end of the session. He argued that counseling for borrowers prior to taking on dangerous loan products is a conservative legislative approach because it does not outlaw the dangerous lending practices but simply provides the consumer the information they need to understand the risks. He urged the committee to pass similar legislation in the upcoming session. Had this law been in place before the foreclosure crisis hit it would doubtless have reduced the number of Texas foreclosures.
6) Lengthen the foreclosure process for bad loans
Doggett noted that the Texas Legislature had clear authority to control the foreclosure process and should use that authority to provide additional foreclosure protections to homebuyers facing foreclosure on loans that are commonly agreed to be exploitive. A recent state study shows Texas has the fastest foreclosure process of any state in the United States. There is no reason to extend this fast-track foreclosure process to loans that exploit borrowers.
7) Provide protection to tenants facing evictions due to foreclosures
He suggested that tenants in homes and apartments being foreclosed are innocent victims in the process. Under Texas law a tenant can be forced to move out of a foreclosed property after the foreclosure agent provides them a mere 30 days notice. If a family has rented a house, put down all of the security deposits and utility deposits and enrolled their kids in school it is grossly unfair to force them to move out on 30 days notice despite the fact that they have a valid lease agreement for a much longer term. Most of these borrowers also lose their security deposits in the foreclosure process.
8. Protect consumers from emerging affordable housing finance scams
With the tightening of credit terms and the contraction of the subprime market it is inevitable that many new schemes, designed to prey upon families desperate to purchase a home, will appear. We saw this in the past with abuses through contracts for deed and rent to own programs. The Legislature needs to preempt shady financing schemes that would prey upon desperate low-income borrowers.