02/14/2008

By JULIA SILVERMAN  / Associated Press

A bill aimed at protecting Oregon homeowners facing foreclosure from predatory lenders sailed through the Oregon House on a unanimous vote and appears headed for swift confirmation in the Senate.

The bill approved Thursday 58-0 would rein in such refinancers, who can swarm on homeowners are in danger of losing their houses.

The lenders would have to spell out contract terms in plain language. Homeowners would be given at least 24 hours to review documentation, and lenders would have to include information on how homeowners can cancels their contracts.

"This will protect homeowners who are at the greatest vulnerability," said state Rep. Greg MacPherson, D-Lake Oswego. "They need a lifeline, not someone who will pay more attention to what's in their own pockets."

The bill took shape in a work group convened by Oregon Gov. Ted Kulongoski, and had support from the mortgage industry and consumer advocates alike.

But the two sides have diverged over another bill, this one targeting lenders who deal with homeowners when they first take out loans, instead of later on, when they are on the brink of losing their homes.

The sticking point is a requirement that lenders would have to make sure that their clients have the ability to pay off their loans.

Shane Jackson, a mortgage originator from Portland, said federal language already dictates that people be offered loans that they can afford. The problem comes when the initial rate on the mortgage jumps to a higher percentage, he said, but by then, some people have already refinanced into a more traditional loan, Jackson said.

Consumer advocacy groups, though, have argued that lenders must consider not only the ability of homeowners to pay the introductory or "teaser" rate, but whether they can continue to pay when the interest rate and their bills rise.

A compromise is in the works, but is by no means certain, said both the sponsor, state Sen. Ben Westlund, D-Bend, and industry groups.

If a compromise does come through, Westlund said, one key piece should survive: Limits on "prepayment penalties" — high fines that have to be paid when borrowers try to get out of high-interest mortgages.

Other aspects could include requiring mortgage lenders to have a bricks-and-mortar base in Oregon, cutting off Internet-only companies, and raising bonding and insurance requirements.

"If you do that, you'll eliminate most predatory lenders, because you've just made it unaffordable for them to operate in Oregon," Jackson said.

Oregon hasn't been hit so hard by people defaulting on high-interest "subprime" loans as states like Florida, Arizona and Nevada, but foreclosure rates have been creeping up.