Arizonans: Call to Action

If this article is true, it’s time to contact Representative Jack Harper, people.  Not only have they failed to help homeowners in any meaningful way, they’re going to make it easier for the banks to loot:

Planned Arizona bill lets banks go after ‘underwater’ homeowners who bail

Arizona Daily Star | Posted: Saturday, December 10, 2011 12:00 am

PHOENIX – The head of a key House committee wants to scrap state laws that let homeowners who are “underwater” on their homes simply walk away.

Rep. Jack Harper says Arizona’s status as one of a handful of “nonrecourse” states is keeping the real estate market from recovering here. He said having people abandon their homes further depresses the value of nearby homes.

“The idea is to keep people from being encouraged to just walk away from their house any time they’re a little bit upside down” on their mortgage, said Harper, chairman of the House Ways and Means Committee.

But the move is getting a fight from the Arizona Association of Realtors. Tom Farley, the group’s chief executive officer, vows to “utilize every resource that we have here in protecting consumers.”

Under current law, if a homebuyer walks away from a house and the amount still owed is more than the value of the property, the lender cannot recover the difference from the homeowner. By contrast, owners of commercial property who stop making mortgage payments can be sued for the balance.

None of this was an issue during the red-hot days of the real estate market, when home values continued to skyrocket above what buyers paid.

But that all changed when the bottom dropped out and many homeowners found their houses were worth far less than the balance still owed on the mortgage. For many, the solution was to simply walk away and hand the keys to the bank.

The Arizona Bankers Association has fought for years to repeal or scale back the law, saying when borrowers default, that means less money available for new loans. Lenders are stuck with repossessed homes they cannot sell for enough at auction to recoup their losses. They want to be able to go after the borrowers for the difference.

But Farley, the Realtors’ advocate, said the law makes lenders more responsible.

At one time, banks and thrifts would make mortgages and then keep those in their own portfolios. Now lenders simply write the notes and sell them off, many of those to Fannie Mae and Freddie Mac, the federally backed agencies.

When the homeowners began to default, questions were raised about whether the original lenders had properly vetted the borrowers or simply wrote as many loans as they could to generate origination fees.

The law precluding them from going after homeowners “provides that pressure on the lenders to actually underwrite those loans,” Farley said.

Harper, a Republican lawmaker from Surprise, acknowledged that lenders may have ignored normal underwriting standards. But he said that’s not their fault.

“The federal government uses the Community Reinvestment Act to intimidate the federally chartered banks,” he said. “They give them goals about how many loans you have to make in underserved, low-income areas. And the banks then start making risky loans to meet the goal.”

He also said he does not believe that the banks bear some responsibility for the bad loans and should have to absorb some of the losses when borrowers default.

“The banks are taking all the risk and the buyer is taking none, other than what their down payment is,” he said.

Farley, however, said borrowers do lose more, ranging from what they’ve paid against the mortgage and the value of any improvement on the property, to dings to their credit rating.

Harper said there are situations where the value of the home is so far below what remains owed on the mortgage that there is no real chance of an owner ever catching up.

So he is willing to offer a compromise of sorts: Allow the lenders to go after the homeowner, but only up to the actual fair market value of the property.

So, in the case of a home now worth $210,000, where the remaining unpaid balance on the mortgage is $300,000, an owner would be liable only for that lower amount. The lender would have to absorb the rest.

DID YOU KNOW?

Arizona’s laws that allow homeowners to walk away from mortgages were part of a legislative deal made in 1971, says Arizona Association of Realtors’ CEO Tom Farley.

Until then, a bank that wanted to foreclose on a home because of nonpayment on a mortgage had to go to court, a lengthy and cumbersome process.

That year, Arizona became a “deed of trust” state. The change, sought by the banks, meant lenders could foreclose on a property simply by giving notice and then taking possession 91 days later.

What the lenders gave up in exchange for that law was the ability to go after the home-loan borrowers, Farley said.

Capitol Media Services

“The banks are taking all the risk and the buyer is taking none, other than what their down payment is.”

Rep. Jack Harper,

a Republican lawmaker from Surprise

WHAT’S NEXT?

Rep. Jack Harper will introduce a bill in the next legislative session, which begins in January, to allow banks to go after homeowners who walk away from their “underwater” mortgages.

The proposal will get a hearing in a key committee, House Ways and Means, of which Harper is the chairman.

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