ASF Applauds Move to Veto Minnesota Subprime Act

The American Securitization Forum has issued a statement in support of Minnesota Governor Tim Pawlenty's veto of the Minnesota Subprime Foreclosure Deferment Act of 2008. "Participants in the mortgage finance market have ample incentives to avoid preventable foreclosures, including where appropriate by modifying mortgage loan terms, and an increasing number of such workouts are taking place," the ASF said. "However, by delaying the foreclosure process and reducing de-faulting borrowers' mortgage obligations by force of law, the legislation would have created a host of unintended consequences that would have ultimately hurt all Minnesotans." These consequences include eroding lender and investor confidence in the stability of contracts in Minnesota, causing lenders to restrict the amount of credit they extend going forward and to charge higher rates to compensate for the increased risk, the ASF said. Investors in mortgage-backed securities suffering losses due to the reduced amount of loan payments and the costs of foreclosure delays would have been likely to stop purchasing MBS, drying up the capital these investments provide to lenders, further reducing the amount of mortgage credit available to current and future homeowners, the organization said.