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Commentary: Protecting the American Dream

Imagine this ... One day you answer a knock at your door, and you're served with papers telling you that, unless you pay a large sum of money, your home will be sold and you will be evicted within a matter of months.

Imagine this ... One day you answer a knock at your door, and you're served with papers telling you that, unless you pay a large sum of money, your home will be sold and you will be evicted within a matter of months.

Right now 100 Minnesota homeowners a day play out this scene in every corner of the state. While it could be easy to assume that they bought homes they couldn't afford, in fact, many of them are victims of unscrupulous lenders who offered them predatory loans they could never afford. Others are trapped in the fallout of a housing bubble driven by artificially inflated home values that in hindsight were clearly unsustainable.

Our legislation pending before the House and Senate (SF 3396 / HF 3612) is aimed at helping many of these families by encouraging lenders to restructure predatory loans and allowing a targeted set of homeowners to defer imminent foreclosure proceedings for one year. Homeowners are only eligible for this deferment if they received loans that were deemed so unfair -- by everyone including the mortgage industry -- that they are now banned or strongly regulated.

This legislation differs from many traditional foreclosure moratorium proposals, primarily because homeowners will still be required to make monthly payments during the deferral period. By entering into a mortgage, the lender and borrower have already agreed to share the risk, so this proposal simply continues the shared responsibility.

Not only would this requirement guarantee that lenders receive at least partial payments during the deferral period, it would also ensure that only those homeowners with a reasonable likelihood of staying in their homes could use the deferral option.

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Opponents of this proposal, including Gov. Pawlenty, have ignored attempts to find a compromise and are instead choosing to scare Minnesotans with untrue claims about the bill. Some Wall Street financiers are threatening that the bill will result in a dried-up credit market in Minnesota, a claim with absolutely no basis in fact.

As a matter of fact, the loans included in this legislation are no longer available in Minnesota -- or the rest of the nation for that matter. It's simply not logical to cut off credit on the basis of loans that no longer exist.

Opponents also state the bill would create an unconstitutional interference with private contracts. However, these same claims were rejected by the U.S. Supreme Court when they were made against Minnesota's Farmer-Lender Mediation Program, a program widely credited for resolving the farm foreclosure crisis in the 1980s and touted by the governor as a successful model for foreclosure prevention.

Additionally, many Minnesota lenders are already taking a second look at those contracts and engaging in voluntary loan restructuring, recognizing that benefits to their business interests, clients and the broader economy far outweigh the alternative of foreclosure. The proposed legislation simply requires that out-of-state lenders wishing to continue doing business in Minnesota are subject to the same contractual standards as in-state lenders are.

Finally, it's important to remember that homeownership has always enjoyed unique status in terms of state and federal regulation.

From FHA and VA loans to mortgage interest deductions on state and federal tax returns, policy-makers recognize that homeownership is the foundation of a healthy economy, and that we have a responsibility to protect people on Elm Street as rigorously as we protect Wall Street.

Last year, Minnesota served as a model of consumer protection by passing stringent loan requirements and nation-leading laws against predatory lenders. Today's case for state action is even more compelling. Home foreclosures rose 84 percent last year, and there are expected to be another 39,000 in Minnesota by the end of this year.

Once thought to be a problem only in the metropolitan area, foreclosures now affect virtually every county in Minnesota. People are hurting, neighborhoods declining, the economy is faltering and the credit market collapsing under the weight of this crisis. This bill will help prevent the abandonment of homes and help stabilize families, communities and plummeting property values.

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The wave of foreclosures in Minnesota is one of the most pressing issues of our time. The Legislature and governor must pass legislation this year to keep the American dream of homeownership from becoming a nightmare for more Minnesotans.

Ellen Anderson, DFL-St. Paul, is a member of the Minnesota Senate and Jim Davnie, DFL-Minneapolis, is a member of the Minnesota House. They are the authors of the Minnesota Subprime Foreclosure Deferment Act of 2008.

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