The Foreclosure Crisis

March 13, 2008
There is a lot in the news these days about the real estate industry and the breath-taking number of home foreclosures. As the number of foreclosures spiraled upward nationally, Washington was said to be relatively protected from this trend. We are now however rapidly climbing the ladder of state rankings in number of foreclosures per capita.There are two aspects of this crisis that receive a great deal of attention.
First the lending practices of banks are roundly assailed now. Our legislature just passed laws curtailing certain home lending practices of state regulated institutions. On the national level Fannie Mae and Freddie Mac just signed an agreement that says they will not accept a loans based on an appraisal originating at the bank. This will affect the industry and should serve to delay closings a bit, at least in the short term. In order to help a stagnating home lending industry the FHA has revised its rules.There has also been publicity about foreclosure rescue scams, the practice of preying on people going through a foreclosure by taking their title to their homes, paying off the defaulted mortgage, renting the home to the former owner and eventually evicting the former homeowner. This is structured so that the “rescuer” receives all of the equity in the house and the home owner receives nothing. This term our legislature passed laws closely controlling this activity.
Something that has received almost no attention is the research into fraudulent practices of borrowers, usually home buyers. The Mortgage Bankers Association announced a report that attributes a portion of the current crisis to fraudulent credit applications. The most frequent false statements in credit application in 2007 related to employment history and income. There were also a great number of false statements related to the borrower’s intention ot occupy the home. It should be anticipated that there will be heightened scrutiny in those areas.

Frank Chopp Kills Another Consumer Bill

March 10, 2008
The State Speaker of the House, Frank Chopp, refused to let the Homeowners’ Bill of Rights out of committee, thereby killing it. The bill, sponsored by Democrat Brian Weinstein, who is quitting after this session, merely gives homeowners what they think they already have. It merely causes Washington law in the narrow area of responsibility for unsafe or negligently built residences to conform with common sense. It eliminates only one of many immunities enjoyed by the construction industry and then only with respect to homes.The bill is very simple. It says that someone guilty of the defective construction of a home is responsible to the homeowner if the defect causes damage to the home. Not all that controversial is it?Speaker Chopp killed this bill last year and did the same thing again this session. There is absolutely no legitimate reason for this bill not to be law. There is no policy reason, no legal reason, no legitimate reason of any kind.

Speaker Chopp killed this common sense measure to preserve the immunities of the construction industry, maintaining the burden of defective construction on the back of the absolutely innocent consumer. Mr. Chopp believes that by catering to BIAW, the building industry lobby, the Democratic Party will curry the favor or at least avoid the opposition of one of the State’s most influential special interests.

By the way, frequently homeowner’s property insurance does not cover this loss, leaving the consumer completely out of luck.

Washington Becomes a Lead State in Cracking Down on Foreclsore Scams

March 7, 2008
I almost missed it! This is great day because the legislature passed last night the equity skimming bill recommended by the Washington State Attorney General in January of this year. In two months the legislature passed a comprehensive bill specifically addressing foreclosure rescue scams. Representative McIntire called my this morning on his way back to Olympia from Seattle. He said that the yesterday’s session did not end until 1:30 this morning. The time was apparently very well spent.

This bill, HB 2791 , strikes right at the heart of the frauds that have been perpetrated on homeowners, making these scams felonies, as they should be. People who p[resent themselves to homeowners as consultants for foreclosures and default ed home loans are now subject to disclosure requirements and well articulated standards of behavior. The “savior” is prevented from absconding with more than 18% of the equity.

I will provide a more detailed discussion of the bill at a later date. When not impeded by special interests the Washington legislature is capable of very speedy action. With this bill (assuming the governor signs it, which is a safe assumption) Washington become one of the lead states in criminalizing this reprehensible behavior and regulating the permissible scope of legitimate activity.

Washington Legislature Begins Addressing Mortgage Crisis

March 7, 2008
Last night the the State Senate passed SHB 2770. (After passing through the legislature without an opposing vote it would be quie surprising if the governor did not sign this.) The original sponsors of the bill were Representatives Kenney, Lantz, Upthegrove, Conway, Morrell, Schual-Berke, McIntire, Hudgins, Simpson, Rolfes. This bill takes a very positive step to avoiding many of the mortgage-related difficulties that have beset so many home owners and gives the State Department of Financial Institutions rule making authority to address further details. It is important to remember that this bill does not cover national banks and federal institutions.

The bill imposes limits on prepayment penalties, prohibits negative amortization home loans, and makes it a felony for a mortgage broker to steer a home owner to a loan for which he or she is not qualified or for the broker to make a materially false statement. The broker is held to a strict standard of good faith.

The deed of trust act is amended to provide that the notice of foreclosure must include a notice identifying the various legitimate options available to the homeowner. (This is something that was absent from a bill I previously discussed.)

This bill addresses a portion of the foreclosure crisis. Other bills, particularly the foreclosure recovery scam legislation recommended by the Attorney General’s Office, are still pending.

New Law to Curb Unfair Homeowners’ Associations

March 5, 2008

Over the last decade, or more, there has been a great deal of attention paid to fraud and mismanagement in homeowners’ associations. Condomiums are controlled by these organizations, as well as many communities created by subdivision or similar processes. The homeowners’ association is typically organized in a corporate structure with a governing board of directors.

Typically most owners are not much involved in the operations of the organization. Governance then falls on a small group of individuals with an interest in such things. Unfortunately sometimes these associations are run like a fiefdom by the individuals on the board. More recently boards have been assigning the duties of governance to management companies which collect a substantial fee and are often criticized for heavy handed treatment of the residents. The management fee can become the driving force in escalating owners’ fees.

In response to the widespread complaints of abusive practices by homowners’ associations, the legislature passed in 1995 laws governing the creation and administration of homeowners’ associations. The law certainly helped but cries of abuse were far from silenced.

This session the legislature is seeking to refine some of the features of this law and provide homeowners with better protection from mismanagement by their association. This bill excludes condominium associations, hopefully for some reason other than the fact that matters affecting condos are handled by a legislative committee separate from the home owners committee.

This bill says that associations cannot take any action that conflicts with the statutes. Before the association takes any enforcement action against an owner, it is required to give notice and a hearing. The new law spells out what the notice should contain and what recourse a homeowner has. This notice requirement will go a long way to helping people who feel that they are being singled out by requiring the association to specify the violation, the evidence, and its authority, among other things. The bill then specifies the rule that must be followed for a fair hearing. These requirement are fairly extensive and assure the person being fined that he or she knows the evidence and the exact procedure that will be followed. The right to a lawyer is affirmed.

Before anyone signs an agreement to property governed by an association, the seller is required to provide a statement informing the purchaser of the powers of the association. The seller is also required to provide an information packet that answers in some detail common question about associations. The “seller’s disclosure form” is also amended to provide the nam and contact information for the association.

Five percent of the owners can under this bill call a special meeting and set the agenda for that meeting. The board is required to arrange these meetings at a reasonable time and place.

The board is not permitted to have closed meetings, unless the majority so votes in an open meeting. The motion for a closed meeting must specifically state its purpose. The board is required to keep minutes of its meetings which must be made available to the members.

The bill contains sections limiting permissible bylaws and the scope of declarations and sets controls on action taken by the board without the approval of the members. Members are given rights with respect to rule changes.

There is also a mandatory mediation provision that gives disputants a middle ground for the resolution of many issues before resorting to court.

This bill, ESB 6745, passed the senate without dissent and is now in the house judiciary committee.

Washington Senate Consumer Protection and Homeowners Committee

March 4, 2008
Sometimes a person could almost get skeptical about the legislature. Take for example the foreclosure crisis and the millions of dollars that are taken from homeowners through foreclosure rescue scams. The Attorney General recommended legislation to help avoid this type of larceny and to penalize those who perpetrate it. A blue ribbon Task Force on Homeowner Security was assembled which duly issued a report to the Senate Consumer Protection and Housing Committee.The report, like most of its kind, contains a lot of fluff. It says that it would be a good practice for lenders to enter into workout agreements which permitted the homeowner to pay an affordable amount. Duh! Apparently this blue ribbon panel was unaware that nearly every homeowner is this situation begs for such consideration, often without ever being able to reach a responsible person on the phone. There is much talk about consumer education and enhanced public awareness that might have helped some of the victims, but does not really get to the root of the problem.There were two areas of discussion though that particularly caught my eye. One was legislation addressing mortgage fraud and rescue scams. (This is what the Attorney General is seeking.) The other was that the foreclosure notices themselves could serve a public interest function by alerting the homeowner to legitimate counseling opportunities and warning against scams. What a great idea! This would truly serve a public purpose, at no public (or private) expense. People actually read those notices and what would it hurt to tell them about legitimate avenues of inquiry, as well as the threat of scams. This is exactly the information that the victims do not have. It would involve relatively minor changes to the Deed of Trust Act.

Dutifully Brian Weinstein, the chair of this committee (who has fought for a number of consumer oriented bills, usually with fellow Democrat Frank Chopp), sponsored a bill to change the Deed of Trust Act. The proposed changes though bore no relationship to the changes proposed by the committee’s task force. In fact they worsened the situation of the scam victim. The trustee is the person or company which actually performs the foreclosure. It has a fiduciary duty to the homeowner, the highest duty imposed by law. The proposed legislation eliminated that. It did provide that the trustee had to have an office with a telephone in this state, but then changed the law so that the trustee does not need to answer its phone. Requests for information need not be honored unless they are in writing and then the trustee need not respond sooner than 10 days. These changes limit and delay the information attainable by an aggrieved homeowner. That’s it! Nothing about informing the homeowner of legitimate counseling opportunities or warning about scams. How on earth could the chairman of the committee that had a report recommending changes to the Deed of Trust Act, sponsor a bill that, not just disregarded those proposed changes, but actually hindered the homeowner’s interest in being treated fairly and getting information.

Discussing the State Budget

March 2, 2008

Are you as confused as me by discussions about the state budget?  This year’s budget seems to be the lightning rod in the gubernatorial race.  The Seattle Times checked in saying the budget was too fat, pointing to the legislature’s lunatic desire to bring teachers’ salaries closer to the national average.  The Tacoma News Tribune called the house budget a “doozy” and portrayed state representatives as irresponsibly disregarding economic forecasts.  Bill Hinkle, a Republican from Cle Ellum, encapsulated the views of these dailies when he found biblical precedent and foresaw seven years of fiscal pestulence.

I find it difficult to assess these dire warnings and calls of alarm.  First how on earth can I evaluate economic forecasts?  I know that the Seattle Times called Gregoire’s previous budgets crazy and irresponsible because of economic forecasts but these budgets worked out wonderfully by all accounts.  The Times — obviously inspired by a sense of dignity and humility — called the success of Gregoire’s budgets blind luck, so the Times is right even when its wrong.

I’ve never been able to make heads or tails of of the state budget.  It’s numbingly long, loaded with indecipherable jargon and altogether daunting.  This has made me reticent about entering into discussions about the budget; I do not have any sort of picture of what it is.

Perhaps tiring of being pilloried by platitudes, the legislature is (I think) about to pass a bill which should make the budget more accessible to everyone.  SB 6816 passed the senate without a dissenting vote and on Thursday  was unanimously approved by the House Appropriations Committee.  This bill would create an accessible, searchable website containing the budget.  Eight states already have such a thing and several others are moving toward it.  The Washington Policy Center has a great article about this.