Foreclosures may be best dealt with at state level

state laws could help struggling homeownersSeems like most important consumer-oriented legislation of late in this country comes back to the argument that is just about as old as the American republic: are the best remedies to be found under federal or state laws? So, it probably should not come as a surprise that solutions to the ongoing foreclosure crisis in many parts of the country, in the view of some, may best come from the states rather than from Washington.

This is nothing new. With health care, the nationally administered so-called public option gave way to a system of state-based purchasing pools called "exchanges"; with consumer protection, the debate is ongoing about whether it is better to have federal laws that can preempt state laws that may or may not be stronger than the proposed federal law.

In Massachusetts, the state Senate is set this week to begin debate on a measure to better protect renters from eviction from foreclosed buildings as well as to beef up consumer laws for elderly homeowners thinking about taking out a reverse mortgage, according to the Associated Press.

The reason for the state action is a dramatic 22% jump in foreclosures in Massachusetts in March from the previous month. Foreclosures are also up 8% from the same period the year before.

The bill would also tighten up state laws that criminalize mortgage fraud involving residential properties.

Two recent studies would seem, in fact, to demonstrate that stronger state laws protect consumers best against foreclosures. The Center for Community Capital at the University of North Carolina at Chapel Hill looked at two things:
  • Study one showed that "states with strong anti-predatory lending laws exhibit lower foreclosure risk than other states...A typical state law reduces risks by as much as 18 percent."
  • The second study concluded that the default risk on properties went up by as much as 41% when the federal Office of the Comptroller of the Currency exempted national banks from certain state lending laws.
As blogger Redi Cramer of the New America's Asset Building Program says, "Together, these findings indicate that when states enact better laws, fewer homeowners suffered and there is significant merit in making sure that the new regulatory regime at the federal level creates a floor and not a ceiling for consumer protection."

Charles Feldman is a journalist, media consultant and co-author of the book, "No Time To Think-The Menace of Media Speed and the 24-hour News Cycle." He has written about real estate related issues for several years.

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