As reported in the Minnesota Monitor, a recent veto by Governor Pawlenty was called "class warfare" by a University of Minnesota professor. There's a good reason for that: he seems to be ignoring the way the mortgage market works, looking for an excuse to avoid helping those who are the most vulnerable.
Molly Priesmeyer reports on the substance of the vetoed bill:
The bill would've required homeowners with a subprime or negative amortization loan originated before August 1, 2007 to pay either 65 percent of the payments due when the loan defaulted, or the minimum monthly payment when the mortgage was first created, whichever is less, for a one-year foreclosure-deferment period.
Essentially, it gives the homeowner a break for a year, to help them try to get their finances in order, and to bide time until a comprehensive federal law is passed.
In his veto message, Pawlenty wrote:
If Minnesota creates a statutory right for individuals to remain in their homes... mortgage providers will factor this additional business risk into mortgage agreements and Minnesota mortgages will be more expensive.
But Pawlenty's veto is based on a misunderstanding of how the mortgage market works. The fact is, this is good policy for both homeowners and lenders. Foreclosures are very expensive for lenders, who would rather avoid them. Usually, they can only recoup a fraction of the value of the loan. This begs a question: whom does Pawlenty think his veto is benefitting? The professor quoted in Priesmeyer's article, Prentiss Cox, sums it up well: "It may make good, if divisive, politics -- inciting fear in the affluent against homeowners in need -- but it doesn't make sense from a market perspective."
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