States to Feds: If you won't act quickly, we will

There's an interesting story in today's Wall Street Journal about state efforts to help stem the foreclosure problem. The gist? Many states are frustrated by the slow pace of federal efforts to combat rising foreclosures, so they're taking the law -- literally -- into their own hands.

Here's an excerpt ...

"State governments are acting more aggressively to help homeowners avoid foreclosure, frustrated by what they view as the federal government's inadequate response to the mortgage crisis. But some of the programs are putting states at odds with mortgage lenders.

"Ohio officials announced Tuesday that they had enlisted more than 1,000 local attorneys to work with certain borrowers free of charge to try to block foreclosures.

"Wednesday, an Illinois lawmaker introduced a bill, backed by the state's governor, that would impose a moratorium of as long as 60 days on foreclosures. The measure would apply only to borrowers who enter housing counseling and is meant to give them more time to work out a deal with lenders.

"Maryland Gov. Martin O'Malley signed emergency legislation Thursday to give borrowers at least 150 days to cure defaults, effectively creating a short-term moratorium on foreclosures. The state also is requiring mortgage-servicing companies to provide the names of borrowers whose adjustable-rate mortgages are about to reset to higher rates, and it is asking companies to stop levying late fees and other charges on borrowers whose request for a loan workout is being evaluated.

"The state actions come as Congress considers a variety of plans to aid the housing market, including a $15 billion plan that includes a tax credit to buyers of properties facing foreclosure and grants for communities to buy and refurbish foreclosed properties. But there is little in the plan that would help individual borrowers facing foreclosure, and state officials say they can't wait for federal help.

"Foreclosures push down property values and tax revenues and create problems not only for borrowers in financial distress, but also for their neighbors and communities.

"We have a crisis in mortgage foreclosures, and this seemed like the boldest way that we could respond to the problem," said state Sen. Ellen Anderson, a sponsor of a Minnesota bill that would let some borrowers with subprime loans or negative amortization mortgages defer paying a portion of the amount owed, without being considered delinquent. A negative amortization mortgage is one in which the loan balance can grow even if the borrower keeps up with the payments.

"The Minnesota legislation would require a mortgage lender attempting to foreclose on a home to honor a borrower's request for a 12-month deferment. During that time, the borrower would have to continue paying either the monthly payment due on the loan at the time it was made, or 65% of the monthly payment at the time of default, whichever was less, though the borrower would eventually have to make up the deferred payments. The bill has passed committees in the Minnesota House and Senate, but the governor has said he probably will veto it. Wednesday, the bill's sponsors sent to the governor a letter suggesting that lawmakers work with him to craft a compromise."

Of course, Congress CAN move quickly if given the proper motivation. All you need, apparently, is to is threaten to stop donating money to Congressional re-election efforts. Then you too can get hundreds of millions of dollars in tax breaks.