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Foreclosure graph.

Hennepin County is facing an estimated 6,100 foreclosures this year, based on the first three months of 2007-up from about 1,100 in a typical year. Source: Hennepin County Sheriff's Office, University of Minnesota.

Victory for the consumer

By Pauline Oo

From M, summer 2007

You've just bought a new home. Hurrah! Eight months later, the bills are piling up and you need to refinance. You jump on a deal you see on television. Next thing you know, you fall behind on mortgage payments and foreclosure beckons.

According to the nonprofit Center for Responsible Lending, millions of American households will lose their homes, and as much as $164 billion, because of subprime loans. The term "subprime" is an oxymoron, because subprime loans are actually offered at a rate well above the prime rate, and they target consumers with impaired or nonexistent credit histories. From 1998 to 2006, 15 percent of subprime mortgages resulted in foreclosure.

Hennepin County saw more than 3,000 home foreclosures in 2006, up more than 80 percent from 2005 and nearly 350 percent from 10 years ago. But things will soon start looking brighter for Minnesotans.

In May, Gov. Tim Pawlenty signed a law that would protect Minnesota residents against unscrupulous home mortgage lending. "This is the best predatory lending law in the country," says University of Minnesota Law School professor Prentiss Cox. "It is the first step in a comprehensive approach to abating foreclosures."

Cox and fellow Law School alum Amber Hawkins, an attorney with Legal Services Advocacy Project, were the principal drafters of the legislation. The law requires mortgage brokers to act in the homeowner's best interest and prohibits loans without proof of the borrower's repayment ability. It also bans prepayment penalties on subprime loans and requires homeowners with nonstandard loans made through organizations like Habitat for Humanity to get financial counseling before refinancing.

Right now, says Cox, former Minnesota assistant attorney general and manager of the Consumer Enforcement Division, "there is a huge backlog of subprime loans that will persist for several years. But we should see a reduction in the number of foreclosures on loans after August 1"--when the new law goes into effect.