Well, representation may finally be here, provided the leadership in Washington doesn’t fail again. Some highlights from the latest proposal are:

• To offer all responsible homeowners the option to refinance at 4% (Republican).
• To offer the $7500 (possibly $15k) buyers tax credit to all home buyers, not just first-time buyers (Democrat).
• To reset the payment for those in foreclosure so that it is no more than 31% of gross income (Democrat).

While I am not a fan of bailing out those who bought a home worth more than they could afford (re: the last proposal), I understand that most people do not plan on losing their jobs. This means that while the last proposal bails out gamblers, it also protects those who may have had a recent job loss and are trying to make ends meet. People with families and children who should probably know enough to save but haven’t learned why.

Eugenians know Peter DeFazio is the man to talk to about this. Send your message to Peter through this form if you agree that the bailout should support not only gambling bankers and irresponsible borrowers, but also those who provide stability and financial temperance during this crisis of confidence.

This blog would like to offer a couple of additional proposals:

• The banking executives that led the country down this dark, over-leveraged tunnel should fail. Bonuses should never exist in this environment. Our government cannot afford the perception that it is corrupted by a revolving door that protects those who need no financial protection.
• The banks that deceived shareholders and homeowners regarding the extent of their “off balance sheet” assets should fail. No bailout for the gamblers and liars. The government should replace that liquidity with STRONGER loans to their competitors w/strict rules to protect the borrower. When Lehman brothers failed, it hurt, but what hurt more was not purging the rest when that could have been done within a matter of months.

The National Association of Mortgage Brokers has suggested that the FTC or HUD step in to manage a list of nationally recognized mortgage brokers. Obviously something that could have been handled via self-regulation two years ago!

In this letter, the association clarifies what this law will mean for mortgage brokers. Mortgage brokers need surety bonds in order to remain in business.

The Surety and Fidelity Association makes it clear via this document that if Oregon Senate Bill 965 passes the House, and the governor signs it into law, that many small mortgage brokers may simply go out of business. For the predatory lenders, good riddance. For the remaining 3,200+ licensed mortgage brokers in the State of Oregon, this bill simply means that unless they work for a bank or large financial institution, the State of Oregon doesn’t care what happens to them. At best 42 legislatures in the House didn’t care on June 14th when they voted to send it to the Elections, Ethics and Rules carried committee.

Given that 60% of all home loans come through mortgage brokers, the House is smart to investigate this law before bringing to a vote. Possibly because the votes aren’t there?

For the very latest, here’s a helpful snippet from the OAMP:

Some of you, and others within the mortgage industry, have advocated “blasting” all members of the House Rules Committee with as many emails as possible, encouraging them NOT to allow SB 965 to be released from the committee, whether it’s in it’s current form, another amended form or it’s original form (as approved by the Senate).

Though that is our hope, our legislative advocate, John McCulley, feels that “jamming their e-mail in boxes” again at this time could possibly backfire, risking alienating some of those on the committee who are already supporting our position and hardening the opposition of those who don’t. He recommends that we send emails ONLY FROM CONSTITUENTS of the seven members of the committee. Those constituents could be our members, or—preferably—consumers who have benefited from the “non-traditional” programs that are the focus of much of the bill.

This sounds like good advice, and not a delay tactic. If somebody reading this post has statistics or case studies about “non-traditional” programs that provided consumers with tangible results, click on the contact form to the left and send those in.

According to Business Week, 32% of sub-prime borrowers were more than 30 days late in paying their mortgage in 2003. That number was 36% in 2006. On the other hand, the percentage that were late on credit card payments fell from 32% to 24%. A significant drop. You can view the rest of the article here.

The up-front cost of a sub-prime loan is obviously more than a rental deposit, but given the circumstances, and risk taken at the wrong time, these people might be smart to drop out of their expensive loan payments when the mortgage + taxes + PMI payment might damage their ability to obtain credit cards.

For these borrowers, the only difference between a sub-prime loan and paying rent is that you pay rent to the sub-prime lender instead of a landlord, the payment is probably 15-30% higher, and you incur some costs at close (unless you roll them in). For the remaining 64% who take out these loans and can make the payments, the risk might be worth the reward. Especially if they’re able to acquire an asset that increases in value at a monthly rate HIGHER than the difference between what they would pay in rent, and their mortgage payment. This is very possible over a 3-4 year period, and holds the potential to lift these people into the Middle Class.

What’s interesting about the sub-prime debate going on in Oregon, and other States, is how little it is understood by the people enacting the laws. For 64% of borrowers, sub-prime loans may in fact offer them a way out of the endless payday loan cycle, by giving them ownership of an asset that has the potential to grow at 3-8%/year. Ironically, if subprime borrowers were given a pass on their property taxes, often 20% of the mortgage payment, these borrowers might actually be able to afford this asset. Cap payday and CC loans to them, give them education vouchers and free classes on budgeting, economics, and finance and they’ll have a chance to make it.

Somehow I doubt SB965 will lead to a debate about ending property taxes for sub-prime borrowers. That would mean the government would actually have to take responsibility for the working poor by sacrificing their revenue too. Not just the revenue of legitimate mortgage brokers licensed through the State. That’s the easy way out.