Monday, April 07, 2008

Here’s One Way To Fight House Scammers -- And It’s Bipartisan!

This week’s column follows up last week’s. The good news is that I got a call from a friend in the state AG’s office, who says they’re interested in pursuing mortgage fraud cases. They’re having trouble assembling cases, because in many instances, the borrowers are either involved in the fraud, or are leery of participating in a state investigation, so they haven’t found many victims either willing or suitable for pursuing cases. But I got a name and direct-dial number to pass on to the victim.

The bad news is that a small, but worthwhile, state effort got thwarted by referral to the Judiciary Committee (of all places) for no apparent reason other than too much D support. (My suggested headline is above, but the editor went in a different direction.)

And I didn’t have much room to discuss the Senate bill, but the most absurd part is billions in tax rebates for the homebuilding industry, of all things, like we need to encourage the construction of more homes to counteract the correction of the bubble. Hey, everybody loves homebuilders, right?

FOR REPUBLICANS, DEMS’ BACKING DOOMS GOOD BILL
East Valley Tribune, Apr. 6, 2008

“Hey, wise guy,” wrote one emailer after last week’s column, “So exactly what would you do about mortgage fraud?” Well, one thing is Senate Bill 1343, the Arizona Home Equity Theft Prevention Act, sponsored by Sen. Debbie McCune Davis, D-Phoenix.

SB1343 passed the state House Financial Institutions Committee on (gasp!) a bipartisan vote when Chairman Bill Konopnicki, R-Safford, joined 4 committee Democrats. The bill addresses the situation described in last week’s column, when a schemer comes to a distressed homeowner, claims he’ll refinance the house, but takes title and absconds with loan proceeds. (That scheme also was featured on the FBI’s website last month as the “Latest Scam on the Block,” called “house stealing (variation 2).”)

The bill is supported by key real estate trade associations, Citigroup, and the Arizona Attorney General and the Department of Financial Institutions. It would require licensing of commercial purchasers of houses in foreclosure (other than lenders foreclosing or purchasers buying their own principal residence). As DFI only can go after licensed entities, requiring licenses for commercial purchasers of distressed properties is the only practical way to create an enforcement mechanism. The bill also requires basic, uniform consumer disclosures to prevent homeowners facing foreclosure -- who have little experience and expertise with real estate -- from being lulled into equity-stripping under the guise of foreclosure protection or financial assistance.

It’s not a perfect bill, and a pure scammer could forge a license or ignore the law, but it would help. Homeowners would know to deal only with licensed individuals, and would get brief, large-print disclosures. Other financial intermediaries like lenders, title insurers, and real estate agents could avoid being left holding the bag.

Unfortunately, bipartisan ideas don’t get very far in the GOP-controlled House. The Republican House leadership decided to kill this good idea by assigning it to another committee, where it will die a quiet death by missing mandatory deadlines for bill progress. So SB1343, one good idea for dealing with this form of financial fraud, won’t be adopted because it suffers a fatal flaw: too many Democrats supported it.

SB1343 is a lot better idea than the U.S. Senate approach, which is the type of bipartisan compromise that takes completely disjointed ideas from both sides solely to claim the bipartisan mantle. The Dodd-Shelby bill provides billions in tax rebates to homebuilders, but little to homeowners facing foreclosure. Once again, we’re insulating really big institutions from the consequences of their bets, but efforts to assist individual homeowners would violate our principles.

Two final points. First, you could argue that Bear Stearns shareholders, at $2 per share, were bearing the risks of their investment. But once JP Morgan Chase upped the offer by five times, and with the Fed swallowing $29 billion of credit risk, that argument doesn’t hold much water anymore.

Second, the House GOP’s unwillingness to acknowledge the existence of Democratic members is somewhat puzzling, especially their insistence on spending all their time and effort on a doomed GOP-only budget, just like last year. The only way this tactic possibly makes sense is if House Speaker Jim Weiers is secretly smitten with Cong. Gabrielle Giffords, D-Tucson, which is understandable if you’re a guy -- but not if you’re a Republican.

Everybody knows that there has to be a budget deal with Democratic Gov. Janet Napolitano, and that it’ll get worked out again in the state Senate, whose GOP President, Tim Bee, has announced he’s running for Congress against Giffords. Every day that Weiers puts off compromising and developing a bipartisan budget is another day the Legislature has to stay in session, keeping Bee from fundraising and campaigning. If this year’s budget takes as long as last year’s, then Bee won’t have much time to generate buzz for his congressional race.

It’s not like this is going to be a good year for Republicans nationally, or that the National Republican Congressional Committee is flush with funds to spend on Bee. So why is Jim Weiers being Gabby Giffords’s best friend?

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