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Texas Attorney General Greg Abbott wants to do something about the looming mortgage crisis which is hitting his state and just about all others.

Texas is a big state with a big foreclosure problem. According to RealtyTrac.com, Texas had more than 14,000 foreclosures in September, ninth-most in the U.S. and up 22 percent when compared with last year.

The Texas AG invited three of the largest lenders in his state for a discussion regarding how best to handle borrowers in peril.

"Mortgage lenders, loan servicers, and public officials must work cooperatively on behalf of Texas homeowners who are affected by the looming housing crisis," said Abbott. "Because of the housing industry's tremendous economic impact, resolving this issue is important to the Texas economy's continued growth and expansion. We believe that the proposals laid out in today's meeting offer real solutions that will help keep Texans in their homes."

And what are those real solutions?

The Texas AG's list looks like this:

  1. Mortgage companies should consider easing homeowners' mortgage-related burdens by converting adjustable-rate loans into fixed-rate products. Many ARM loans have already adjusted and pushed countless consumers into the foreclosure process. Because of high foreclosure costs, this proposal benefits lenders, loan servicers and homeowners.
  2. Mitigate first, collect second. Under the protocols currently used by most lenders, homeowners who have difficulty making payments receive expedited referral to the collection process, which is often antagonistic and intimidating. Abbott wants lenders to engage homeowners before sending a case to collections by reviewing each case in a non-confrontational setting and exploring solutions. By doing so, the servicers increase the chances of debtors repaying their obligations.
  3. Create an in-house resolution committee to immediately address consumer complaints received by Abbott's office.
  4. Contact consumers well before ARMs reset to higher interest rates so that fixed-rate options can be explored.
  5. Waive applicable penalties and fees while working with troubled consumers to preserve their loans.

Mr. Abbott gets points for common sense and for jawboning. He's got the right idea.

But the problem is that he's the Texas attorney general, a state official. Many of the lenders he needs to talk with are regulated by the federal government. Under the concept of "preemption" found in Article VI of the Constitution, federal law generally trumps any conflicting or contrary state law.

"Abbott," says the BankLawyersBlog "wants the three servicers to report back to him in thirty days as to their 'progress' in complying with his 'five measures.' Or what? He doesn't say. Issue another press release? Surely, there's no legal basis for any legal action against the three servicers if they decline to follow Abbott's five measures and tell him to pound sand."

The real importance of Abbott's effort is that it exposes once again that the veil of regulation which supposedly protects American borrowers is nonexistent. Good efforts to control lenders in North Carolina, California, Texas, Colorado and other jurisdictions can never be fully effective as long as lenders can hide under the limp hand of federal guidelines that they influence, originate, lobby, limit and contain. Unless and until federal rules are changed, real borrower protection is not possible.

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