In Bed With Bankers
6/4/2008
Source: By Maureen Downey, The Atlanta Journal-Constitution

The Georgia General Assembly maintains it is powerless to reduce the number of cataclysmic foreclosures decimating communities, forcing home builders into bankruptcy and destabilizing the state economy. The real problem, according to lawmakers, is that too many foolhardy borrowers failed to read the fine print and rushed into high-risk loans they couldn't afford.

There's some truth to that claim. However, it is also a convenient excuse for a legislative body nearly a third of whose members have financial ties to the banking and lending industries. An analysis by The Atlanta Journal-Constitution found that 73 of 236 legislators are engaged in banking, which helps explain why Georgia allows lenders to foreclose on houses in as few as 37 days.

Legislative bodies in other states are moving more quickly in response to the crisis. Last month, Maryland passed landmark laws extending the minimum length of foreclosure proceedings from 15 days to more than four months; imposing tougher criminal sanctions against mortgage fraud; and cracking down on foreclosure-rescue scams in which troubled borrowers are duped into losing title to their homes. And Ohio has marshaled more than a thousand attorneys to help homeowners avert foreclosure.

In its recent do-nothing session, the Georgia General Assembly did make two small changes to foreclosure laws, one requiring lenders to notify homeowners at least 30 days before holding a foreclosure auction and another giving borrowers the right to know who actually holds their mortgages so they can negotiate for new terms.

However, Georgia will never enact more substantive consumer-mortgage protections until the Legislature stops blaming the crisis solely on unsophisticated borrowers, ignoring the role played by unscrupulous lenders and a government that failed to protect its citizens.

The subprime market flourished because of three decades of deregulation. Loans were made without concern over whether the borrower had a job, income or any ability to make payments. Volume-hungry mortgage brokers enticed borrowers with tempting teaser rates that ballooned down the road, when the loan had been sold many times over to unwary investors.

In 2003, reciting banking-industry talking points that regulation limited homeownership and the availability of credit, the Georgia Legislature gutted a strong state predatory lending bill that would have forced the mortgage industry to be more responsible and stop the worst abuses. As a result, Georgia has one of the highest foreclosure rates in the nation.

The banking industry is grateful. In the 2008 legislative session, banking lobbyists spent about $27,500 on legislators' food and drink.

"It's because these lawmakers are disconnected from the homeowner and the communities that are suffering from all these foreclosures," says attorney Ira Rheingold, executive director of the National Association of Consumer Advocates. "The lawmakers' communities have become the banks they play golf with and go out to eat with and get their money from."