Projo 7 to 7 News Blog

Lobbyists for banks, credit unions, mortgage brokers and financial-services companies testified against a bill today in the General Assembly to require lenders to post bonds to pay for the upkeep of foreclosed properties.

The legislation (An Act Relating to Towns and Cities, H-5115) introduced by Rep. Charlene Lima, D-Cranston, was approved by the Generall Assembly last year, but vetoed by Governor Carcieri.

Stephen C. Tetzner, a lobbyist for the Rhode Island Mortgage Bankers Association, told the House Committee on Finance that the legislation would increase the cost of new mortgages because if banks have to pay for repairs they will pass on those costs to future borrowers. The bill also could prompt pension funds and other investors to "shy away from the Rhode Island market because of the difficulties of having to post bonds."

Richard Beretta, of the Credit Union Association of Rhode Island, said that the legislation also raises "equal protection issues" because it treats banks which buy foreclosed properties differently from homeowners who do the same.

Francis X. McMahon, a lobbyst for the New England Financial Services Association, said that while his group is "technically" opposed to the legislation, they are "open to working with" the supporters of the bill.

"I represent banks, I don't represent mortgage companies," McMahon said. "We're not the Option Ones," he said, referring to the giant subprime mortgage lender.

NEFSA's members include companies that issue personal loans, automobile loans, home equity loans and credit cards, according the the organization's Web site.

William A. Farrell, general counsel and legislative counsel for the Rhode Island Bankers Association, said in an interview after the hearing that the bill would punish all those lenders who foreclose on properties for a "smaller number" of those with violations. That expense will impact the whole industry, he said.

Despite those misgivings, Farrell expressed optimism that the lenders and community groups can work together to come up with a bill that everyone can support. "We're gonna get this thing done," he said.

The House Finance Committee held the bill for further study.

The bill would require banks or mortgage companies which foreclosed on properties to post bonds that represent 25 percent of the property's assessed value _estimated at $50 to $600 each _ which the municipality can use to correct code violations if the lender fails to do so within the required time frame.

Dan Beardsley, executive director of the Rhode Island League of Cities and Towns, spoke in favor of the bill.

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