Wednesday, August 26, 2009

Idaho’s not conservative enough

Even though the rate of property foreclosures in Blaine County is about half that in the rest of the state and nation, it hasn't dodged the foreclosure disease that spread faster than a flu pandemic.

As in other resorts all over the world, people bought and sold properties here in the belief that prices would continue to go up each year at rates unobtainable in almost any other kind of investment.

That belief left buyers who purchased property at the top of the market holding the bag. That's particularly hard on working people and their families for whom a foreclosure is a story of dashed dreams.

It didn't have to be this way.

In Idaho, legislators pride themselves on being ultra-conservative. Gov. Butch Otter proudly calls Idaho the reddest of the red states. Yet, it turns out Idaho wasn't conservative enough when it came to regulating mortgage loans.

That honor, according to a recent story in the Wall Street Journal, goes to Vermont.

Back in the 1990s when the creative juices of Wall Street's financial geniuses were flowing unchecked, Vermont regulators paid attention when a sub-prime mortgage lender began charging exorbitantly high fees and when lenders began to look for clients who were desperate to borrow money.

The Vermont Legislature wasted no time in passing laws that required lenders to tell consumers when rates offered to them were substantially higher than others in the market. It made sure borrowers saw the notice by requiring lenders to print the notice on shocking pink paper.

The lawmakers also astonishingly made mortgage brokers responsible to borrowers—not lenders. That made brokers responsible for loans that went bad and made them very cautious about the financial health of the people to whom they made loans.

The result? In July, just one in 28,300 housing units in Vermont was in some stage of foreclosure and the state ranked near rock bottom in foreclosures.

Compare that to Idaho's one in 253 housing units in foreclosure in the same month.

Vermont's laws protected naïve borrowers, made it difficult for lenders to exploit them and made it next to impossible for lenders to take the money and run.

The conservative regulations had only a small negative effect. Vermont's 10-year growth rate was just 3 percent behind the 63 percent rate nationally.

Unlike the federal government, Vermont applied old-fashioned common sense to lenders about to lurch out of control.

If Idaho's self-described "conservative" lawmakers had done the same, its citizens' financial health would be far better today.

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