Gov. Tim Pawlenty has vetoed a bill that included a provision for a year-long foreclosure moratorium. The following reports from the Pioneer Press and American Banker, discuss legislation and Governor Pawlenty's reasons for the veto.

Pawlenty vetoes temporary freeze on foreclosures

Gov. Tim Pawlenty on Thursday vetoed a bill that would have put foreclosures on hold for thousands of Minnesotans struggling with subprime and exotic home loans.

The temporary foreclosure freeze was a key but particularly controversial part of a package of bills sent to the governor recently that are aimed at easing fallout from the foreclosure crisis, 11 of which have been signed into law.

They include laws to protect renters in foreclosure situations, deal with abandoned properties, increase limits on financial assistance to homeowners and give homeowners in trouble more information about foreclosure prevention counseling.

In a letter to state Senate President James Metzen, DFL-South St. Paul, Pawlenty said halting foreclosures would cause lenders to make credit more expensive for other Minnesotans. He also said the bill raises major legal questions because the U.S. Constitution forbids states from making laws that impair existing contracts.

The American Securitization Forum, a group of lenders and Wall Street investment companies, swiftly issued a statement today applauding the veto. Such a law would have eroded "lender and investor confidence in the stability of contracts in Minnesota," it said, ultimately restricting credit.

Sen. Ellen Anderson, DFLSt. Paul, who co-sponsored the bill, accused Pawlenty of "parroting" the rhetoric of large finance companies far from the front yards of families struggling with the housing mess.

"I feel like this is letting down thousands of Minnesotans," Anderson said. "It's a tragedy. The governor has really turned his back on Minnesota."

Anderson disagreed that the moratorium created serious contractual questions. The Minnesota Farmer-Lender Mediation Act passed during the farm crisis in the 1980s, which deferred farm foreclosures until mediation took place, was much stronger than the deferment bill Pawlenty vetoed, she said.

"No one has said a peep since then," Anderson said. "There's no evidence whatsoever that it has harmed lending in Minnesota."

The vetoed bill would have halted foreclosures of subprime or exotic "negative amortization" loans for one year for homeowners, not investors. Borrowers would have to continue making minimal payments during the stay, and lenders would be able to cancel a deferral if they showed they participated in good-faith negotiations with the homeowner in trouble to fix the problem.

To view the online article from Pioneer Press, please click here.

Minnesota Foreclosure Measure Draws Veto 

Gov. Tim Pawlenty of Minnesota vetoed a bill that would have imposed a one-year moratorium on foreclosures, telling legislators it was "not an appropriate solution" to the mortgage crisis.

In a letter last week to Minnesota Senate President James Metzen, Gov. Pawlenty, a Republican, said he vetoed the bill out of concern that it would raise the cost of mortgage credit.

"If Minnesota creates a statutory right for individuals to remain in their homes beyond our already extensive foreclosure laws, mortgage providers will factor this additional business risk into mortgage agreements, and Minnesota mortgages will be more expensive," the letter said. "This will negatively impact the credit market in Minnesota by increasing interest rates for Minnesotans who are trying to refinance or purchase a new home. Those likely to be negatively impacted with higher credit costs or the inability to access credit will be individuals with challenging credit histories or lower incomes."

Also, the bill presented "legal and philosophical concerns," Gov. Pawlenty wrote, because the U.S. Constitution bars states from impairing contracts.

The bill also would have allowed struggling borrowers to make payments equal to the minimum monthly payment at the time of origination or 65% of the payment at the time of default, whichever was lower.

The Minnesota Legislature is not expected to override the veto.

Gov. Pawlenty is seen as a potential running mate for Sen. John McCain, the presumptive GOP presidential nominee.

To view the online article from American Banker, please click here.

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