02/21/2008

By JULIA SILVERMAN  / Associated Press

A bill to make modest reforms to the subprime mortgage lending industry squeaked through the Oregon House Thursday, a big win for House Speaker Jeff Merkley who has made it clear that he intends to highlight the issue in his campaign for the U.S. Senate.

The measure now moves to the Senate, where it is expected to pass.

It would put an expiration date on the "prepayment penalties" that creditors have to pay if they want to refinance or pay off their loan early. Further, mortgage brokers would have to clearly disclose all terms, fees and costs associated with the loans they are providing.

Two Republicans joined with the majority Democrats to support the bill, Reps. Bill Garrard of Klamath Falls and Donna Nelson of McMinnville.

The final vote was 31-29.

"What is wrong with reaching for the American dream?" Garrard asked after the debate. "But maybe some people reached too far. And maybe this will prevent them from getting stuck."

One Democrat split from his caucus. Rep. Mike Schaufler of Happy Valley, who said he was concerned that the state was moving too quickly since the Federal Reserve is considering its own set of changes.

"A lot of questions have not been answered," Schaufler said. "We need to wait to see what the feds will do."

Merkley had worked to broker a deal on the bill against the backdrop of his attempt to capture the Democratic nomination for the U.S. Senate and face off against incumbent Gordon Smith.

First, though, he has to get past Portland lawyer and activist Steve Novick in the primary. In that race, Merkley has been drawing on his background as a consumer rights advocate, including the push to crackdown on payday loans and his background in affordable housing.

Reaching that compromise wasn't easy: Industry groups lobbied strongly against the proposed reforms, saying that they'll put state-chartered businesses at a competitive disadvantage, and could price some low-income buyers out of the market. Their hopes for derailing the bill now rest with the Senate, where Democrats hold an 18-11 majority.

John McCulley, with the Oregon Association of Mortgage Professionals, said he'll ask Senate members to take a long look at the potential costs of enforcing the new rules, a key issue in a session where money is in short supply, and lawmakers are visibly worried about making financial promises that future legislators will have to keep.

But analysts at the state Department of Consumer and Business Services have estimated that enforcement and oversight costs probably won't exceed $50,000, and that some of that could be covered by fines paid by lenders who violate the new regulations.

Some consumer advocates, including the influential AARP, withdrew their support from the proposal after several key components that they'd sought were lost along the way, including the requirement that a creditor verify that a borrower had the ability to repay the loan.

Others took a longer view. Angela Martin, a spokeswoman for the union-backed advocacy group Our Oregon, called the bill a worthy first step. She said that consumer groups will continue to seek even tighter regulations, either in the 2009 legislative session or as a potential ballot measure in 2010.

Buffered by strict limits on urban development, Oregon didn't see the headlong rush to develop new homes that areas like California, Nevada and Florida did in recent years, leaving the state relatively insulated from the subsequent bust in the national housing market. Across the country, many investors took advantage of the booming housing market, and those with shaky credit history qualified for high-interest, high-risk loans known as "subprime" loans, with interest rates that creep up through the course of the loan.

But even in Oregon, subprime loans are becoming more common, and foreclosures — while still a relatively small slice of the overall housing market — are on the rise across the state.

___

The bill is HB3603