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R.EPRESENTING CITIES AT THE CAPITOL Taking on the Foreclosure Crisis Addressing the foreclosure crisis has become a major issue in the Minnesota Legislature. Many bills addressing the issue passed in 2007, and several more have been introduced this year. The League of Minnesota Cities has been actively involved in seeking solutions. ver the last couple of years, Minnesota-along with many other states-has seen a surge in the number of mortgage fore- closures.Years of double-digit property valuation increases and an unchecked lending market led many individuals to buy homes before they could afford them_With dreams of homeowners hip, people jumped into loans with prom- ises of little or no money down and mortgage payments comparable to rent. Demand for loans with adjustable rates grew. Many of these adjustable rate mortgages consisted of low introduc- tory interest rates, which would adjust after two to five years. A majority of these loans were originated between 2001 and 2006, which means the intro- ductory rates are expiring, loans are adjusting to higher rates, and borrowers are defaulting. Foreclosed properties have wide- reaching effects on communities, Neighborhoods with vacant foreclosed properties otten experience an increase in crime, exposure to public safety and health concerns, and the blight left by these abandoned homes. Legislative response The Minnesota Legislature enacted sev- eral new laws in 2007 meant to protect borrowers, address predatory lenders, and curtail the growth of mortgage foreclosures. These new laws, which took effect on August 1, 2007, are in Minnesota Session Laws 2007, Chapters 18 and 106. Under the new laws, mortgage orig- inators must verify a borrower's ability 6 By Hue Nguyen to repay a loan and act in a borrower's best interest. The new laws also prohibit negatively amortized loans, churning of loans, subprime prepayment penalties, and partial payment quotes. An origi- nator must be a business and maintain approval from either the U.S. Depart- ment of Housing and Urban Devel- opment (HOD) or Fannie Mae. An originator must also have a tangible net worth of $250,000 and possess a surety bond or irrevocable letter of credit in the amount of$50,000. Modifications were made to the mortgage foreclo- sure process and clarified compliance requirements. Even with the 2007 laws, more action is needed to deal with the impact of mortgage foreclosures. This issue continues to be a priority for offi- cials at the state, local, and federal levels. Current state legislative efforts The League of Minnesota Cities (LMC) has actively participated and lent support to many of the foreclo- sure assistance bills introduced in the Minnesota Legislature during the 2008 session. Many of the proposals were brought forth by a foreclosure working group, a group of stakeholders called together by Rep.Joe Mullery (DFL- Minneapolis) last summer. Mullery rep- resenrs North Minneapolis, an area hit particularly hard by foreclosures. The working group consisted of a diverse group of local government representa- tives, including LMC, housing advocacy groups, real estate associations, banking associations, and elected officials, The working group divided into smaller groups to address issues such as pre-foreclosure remedies, tenants' rights, MINNESOTA CITIES local ordinances and vacancies, data pri- vacy, and civil and criminal enforce- ment. Almost a dozen bills have been introduced as a result of the group's work-as well as one bill that did not come from the working group_ Four proposals would specifically affect cities. Addressing vacant homes Cities are expending a lot of resources to address vacant and abandoned prop- erties. City officials and League staff participated in me vacancy working group. The existing foreclosure process prohibits lenders from entering prop- erties during the redemption period. As a result vacant homes sit for months until the end of the redemption period. The vacancy working group proposed reducing the redemption period to five weeks in some cases. SF 2918 (Sen. Linda Higgins, DFL-Minneapolis) and HF 3474 (Rep. Debra Hilstrom, DFL-Brooklyn Center) would allow lenders to use a five-week redemption period when a property is known to be abandoned or vacant. This will allow lenders to obtain ownership sooner and possibly rehabilitate and sell the home sooner. Collecting data The data collection working group learned that homeowner and lending information is often not available to foreclosure counselors, making it dif- ficult to help hOn'leowners in need. In addition, the working group determined a need for a statewide database of com- prehensive mortgage foreclosure infor- mation to allow for analysis and tracking of foreclosures throughout the state. APRIL 2008