Banks' ties to legislators run deep in foreclosure crisis

By ALAN JUDD

Published on: 06/01/08

A crisis awaited Georgia legislators last January. Mortgage foreclosure notices in metro Atlanta had increased by nearly a third in a year, and the state ranked third nationally in seriously delinquent home loans.

In other states, lawmakers were taking steps to avert foreclosures. Nine states, for instance, had created funds to rescue homeowners with high-cost loans. Twenty had passed laws aimed at preventing fraud against borrowers in danger of defaulting on their mortgages.

RENEE' HANNANS HENRY/AJC/RENEÉ HANNANS HENRY / Staff
(ENLARGE)
The rate of foreclosures in metro Atlanta has only intensified. This townhome community in Decatur had 16 of its 40 units in foreclosure.

In Georgia, such ideas got little or no traction. When it adjourned in April, the General Assembly had passed a single foreclosure bill that, even some of its supporters say, attacked the problem only on its periphery.

This muted response, consumer advocates and some lawmakers say, owes itself in part to a surprisingly large legislative caucus: the six dozen senators and representatives who have financial ties to the banking industry.

Thirty-four lawmakers sit on banks' boards of directors and, along with 29 others, own bank stock, according to legislators' financial disclosure statements. Others work for banks, are married to bank executives, or are lawyers who represent banks and other mortgage lenders. In all, an analysis by The Atlanta Journal-Constitution shows, 73 of 236 legislators are engaged in banking.

During the past six years, Georgia's stance on so-called predatory and subprime mortgage lending has evolved dramatically. Lawmakers adopted the nation's toughest lending law in 2002, gutted it the following year and now question whether they should intervene at all.

"The House and the Senate and all of Georgia want to keep away from — quote, unquote — 'predatory lending' and 'bad lending practices,'" said state Rep. Calvin Hill (R-Canton), vice chairman of the House banking committee and director of a Cherokee County bank. "On the other hand, if there's a good, clean agreement between two parties and both parties understand it, then both parties should be held accountable."

Senate Banking Chairman Bill Hamrick (R-Carrollton) described efforts to address the mortgage crisis legislatively as "a delicate balancing act."

"I think we did the best we could," Hamrick said. "We wanted to pass the strongest version we could out of the Senate. We felt the House, philosophically, would be concerned about interfering with private contracts."

Others suggest the General Assembly's distaste for regulating lending involves more than ideology.

"Should the public have confidence in a Legislature where one-third of the members have an interest in the banking industry?" said Sen. Vincent Fort (D-Atlanta), an outspoken critic of predatory lending practices. "That's the major issue."

Pressure builds

Georgia's mortgage troubles intensified while the Legislature met this year.

Foreclosure notices in

13 metro Atlanta counties were growing at an even faster rate than they had in 2007. In Clayton County, nearly one in 10 mortgages was at least 60 days delinquent, three times the national average.

Against that backdrop, a few lawmakers offered ambitious ideas to help Georgians in danger of losing homes to foreclosure.

Fort, for instance, reintroduced the Georgia Fair Credit Act — a copy of the 2002 law pushed by then-Gov. Roy Barnes. It placed restrictions on high-cost loans, limited the continual refinancing that pushed many borrowers deeper into debt and required lenders to determine that borrowers had the means to repay their debts.

Many consumer advocates say the 2002 measure might have alleviated the recent wave of foreclosures. But most of its provisions were repealed under heavy pressure from banking lobbyists in 2003, after Barnes (who owned bank stock and had helped found a bank before he was governor) lost re-election.

Another senator, Emanuel Jones (D-Ellenwood), proposed extending the time it takes to complete a foreclosure to 90 days. No state has a faster foreclosure process: A lender may foreclose and sell a property on the county courthouse steps in as little as 37 days.

Neither bill got a hearing before the Senate banking committee.

Hamrick, the panel's chairman, said few bankers — including those in the Legislature — tried to influence this year's foreclosure legislation.

"I felt like as long as we tried to make sure it wasn't going to impact their ability to do business," Hamrick said, "they would be OK with it."

Ultimately, lawmakers approved a bill with two consumer protections. One requires lenders to notify homeowners at least 30 days before holding a foreclosure auction; until then, the law called for a 15-day notice. The other gives borrowers the right to know who actually holds their mortgages, so they can negotiate for new terms or extensions.

"It wasn't sweeping reform," said Allison Wall, executive director of Georgia Watch, a nonprofit consumer advocacy group. "They are changes we had identified going into the session that needed to be made."

"Is there more work to be done?" she added. "I think that goes without saying."

Like most other consumer groups, Wall's organization spent nothing entertaining lawmakers during the 2008 session.

Banking lobbyists, on the other hand, spent about $27,500 on legislators' food and drink, according to disclosure reports. In one instance, five lobbyists split a $2,250 bill for the House banking committee's annual dinner, sponsored by the Georgia Bankers Association, on Jan. 29 at the Commerce Club, records show. In another example, the Georgia Credit Union League spent $3,375 on dinner for members of the House and Senate banking panels.

The one successful foreclosure bill passed with the support of banking lobbyists.

Steve Bridges, president and chief executive of the Community Bankers Association of Georgia and a former state banking commissioner, described the measure as "reasonable" and said it will "do some things for the consumer but not harm business in the process."

Banks opposed any change in the foreclosure process, such as putting judges in charge, Bridges said. Georgia is one of about 25 states to allow foreclosures without a judge's approval.

No bills that even implied a requirement for judicial review advanced this year.

When such issues arise, said Kathy Floyd, a lobbyist for the American Association of Retired Persons, legislators' financial ties "really do seem to have an impact."

In 2003, before lawmakers weakened the predatory lending bill, AARP directed consumers to call their representatives with stories of mortgages with unfair terms, Floyd said.

"What legislators would tell me was, 'I heard from the president of my local bank,' '' she said. "Unfortunately, that carries a lot of weight."

Hill, the House banking vice chairman, dismissed suggestions that conflicts of interest have kept lawmakers from addressing lending issues.

"You have to have a level of expertise ... a good inside knowledge of the industry," Hill said. "If someone could find something specific that needs to be addressed, they could bring it to us."

Lawmkers, bankers

Sen. Tim Golden baffled fellow Democrats when he voted to undo much of the predatory lending bill in 2003. Golden (D-Valdosta) had voted to pass the bill in 2002, then was one of two Senate Democrats who supported the repeal, which passed by three votes.

Several months later, Golden obtained a mortgage broker's license and went into the lending business.

After the 2003 session, Golden said recently, an acquaintance suggested he open a mortgage brokerage. He said the new company, Beacon Hill Financial, made few subprime loans and took pride in being "a straight-shooting brokerage firm."

When he voted to weaken the predatory lending law, Golden said, "I was not in the business, and had no idea I'd ever be in the business."

But he said: "I didn't want to dry up loans and sources to loans. It was one of my better votes, probably."

Golden closed Beacon Hill recently after his partner left for personal reasons. He's still in the lending business, though. This spring he joined the board of a Valdosta bank.

Like Golden, many legislators get into banking long after they take public office.

Both House Speaker Glenn Richardson (R-Hiram) and the presiding officer of the Senate, Lt. Gov. Casey Cagle, were members of groups that obtained state banking licenses while they served in the Legislature.

Richardson helped found a Paulding County bank in 2006 and is still one of its directors. He owns stock in another bank, his financial disclosure statement shows, and his law firm represents several financial institutions.

Cagle's group opened a Gainesville bank in 1999 when he was a state senator sitting on the banking committee. He has said he had no conflict of interests and never used his Senate post for personal gain.

Many lawmakers sit on bank boards in smaller towns, where they often enjoy an outsize stature compared to their colleagues from metro Atlanta. As a result, banking lobbyists say, they help attract and retain customers.

Still, lobbyists say their clients don't go out of their way to recruit legislators to their boards.

"I don't think that it's probably ever done in order to have a voice in the Legislature," said Bridges, of the Community Bankers Association.

But he added: "Obviously, it might be a nice byproduct."