Minnesota foreclosure bill faces veto threat

Instead of trying to halt foreclosures outright, the measure in Minnesota would let people delay foreclosure for one year but only if they keep paying at least 65% of their monthly mortgage payment.

And, that option is only for owner-occupied homes that were financed with sub-prime loans.

University of Minnesota law professor Prentiss Cox, who helped write the bill, says other proposals offer some good long-term solutions but they don't address the immediate crisis. Still, Cox concedes you can't save every home.

"I think the best policy is to figure out who has a chance to keep their home at the end and to do everything you can to help those folks," he said. "I don't think it benefits anyone to defer foreclosure on a property where the homeowner doesn't have a realistic possibility at the end."

Supporters say 12,000 Minnesotans could potentially benefit if the bill becomes law; that's fewer than half the homes predicted to be foreclosed on in Minnesota this year.

But even with the measure's limited scope, there has been strong opposition, especially from the banking lobby. And there's also the political side of the story.

Here's how Sen. David Senjem, a top-ranking Republican from Rochester, decried the measure on the Senate floor this week: "Now we propose through this bill that the Minnesota state government is going to intervene in a private contract, and change that contract and put condition on that contract that really involve two parties. And we were never there to start with."

The Minnesota Senate gave the bill preliminary approval 34 -29 on Monday.

"You know for a governor of a state that has a major foreclosure problem and a governor who's interested in running for national office, this is something that he needs to be a leader on," said Democrat Ellen Anderson, who is sponsoring the bill in the senate. The governor has been listed as a possible running mate for John McCain, so any action on a national issue - like foreclosure - could be revisited if he's picked.

But Pawlenty says he is being a leader on bringing up important concerns and recently said the measure would do more harm than good.

"I'm not supportive of that and I won't support that," he said at a press conference last month. "No other state has done that - it will impact the credit markets in minnesota in a way that's detrimental to the other 99% of Minnesotans who are not in foreclosure."

Supporters say an amendment added to the bill this week should quell some of the governor's concerns and, they say, hopefully avoid a veto which the Legislature would be hard-pressed to override.

That amendment would let lenders stop the foreclosure deferment if they make a good-faith effort to re-negotiate a borrower's loan.

It's not the first time this year that Minnesota's Democratically-controlled Legislature has faced the threat of a veto from the Republican governor. And with all local politics suddenly going national here this year, it probably won't be the last.

(Note: This story was produced for NPR)

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