Under the name of reason: Georgia Watch Legislative Update 1/29/10

GA Watch, a consumer advocay group sent out its first legislative update. If there are groups, organizations, or email's that you feel voters should see feel free to email them to me JimN2010@gmail.com. The goal of the Issue Teams are to provide information/resources so that voters can recieve the needed context for what is going on in GA politics. Help us do a better job by contributing any items we may have missed! --Jim

From the inbox:

This is the first legislative update for 2010 from Georgia Watch. We will be sending these communications on a regular basis, and we will include updates on the various issues that Georgia Watch is keeping an eye on at the 2010 Georgia General Assembly. I will arrange the updates by subject matter. That way you can quickly scroll down to the topic of your choice. If you have suggestions for us (or if we made a mistake or missed something) please let us know. Also, if you want me to add a colleague to this list have them send a request to dorrock@georgiawatch.org. If you decide that you would not like to receive these e-mails, contact us and we will remove you from the list.





Foreclosure First-Aid (SB 57)                 SUPPORT

Link to Legislation, Votes and Status:

SB 57: http://www.legis.ga.gov/legis/2009_10/sum/sb57.htm



In response to the rapid increase of the foreclosure rate in Georgia, Sen. Bill Hamrick (R-Carrollton) filed SB 57 last year. This bill is a holdover from the 2009 session; it passed the state Senate but did not reach the House floor for a vote. So in order to get it to the Governor’s desk, it simply needs approval from the House this year and for the two chambers two reconcile any differences between their two versions.



A House Judiciary subcommittee will hold a hearing on the bill on Monday at 1:00pm in Room 132 of the Capitol. We expect that there will be several meetings to consider changes and then a final vote to move SB 57 to full committee.



We know that the mortgage brokers are working hard to remove the provision that bans kickbacks to them for getting the subprime consumer into a more expensive loan than what they qualify for. The Center for Responsible Lending found that 61 percent of subprime borrowers prior to the housing crash could have qualified for a home loan with a better rate, but brokers steered them into costlier loans in order to make a higher profit through fees. This is the sort of practice that led to the current financial crisis.



Further, broker kickbacks (also known as yield spread premiums, or YSPs) separate the risk from compensation. While the broker is rewarded with a YSP, they bear none of the added risk of the loan – that falls on the borrower and the lender. Like Wall Street bonuses, it’s a short-term financial incentive that is disconnected from long term threats to financial stability.



We will be working hard all session to ensure that SB 57 remains a substantive piece of legislation. Please keep an eye out for future updates and calls to action. Here is a short synopsis of the provisions in the current version of the bill, which we want to keep:



Define “subprime” loan in the Code

That allows us to narrow certain protections and standards to subprime loans only. Some standards for subprime loans may not make sense for all home loans. Making policy changes that target subprime loans, those that led to the current economic crisis, can have a big impact without effecting traditional mortgage underwriting.



Establish a clear ability-to-repay and underwriting standard for subprime loans

Reckless underwriting is a primary cause for the current economic crisis and has cost US taxpayers trillions of dollars. The collapse of common-sense underwriting standards has left us with a glut of bad mortgage debt – in all, well-over 50 percent of recent subprime mortgages, and non-traditional mortgages like Option ARMs, have or will fail. When income verification is absent from the review process, it is impossible to determine a borrower’s ability-to-repay. The most basic lending standard has been all too absent, as up to half of all subprime loans awarded, were done so without income verification.



Limit kickbacks to mortgage brokers

Any mortgage reform legislation should address the direct financial incentives (often called “yield-spread premiums” or YSPs) that mortgage brokers and other originators have to steer borrowers to more expensive loans or unsuitable products. Studies by Harvard, the Department of Housing and Urban Development, and the Center for Responsible Lending have shown that subprime brokered loans are more expensive, more likely to enter foreclosure, and more likely to have prepayment penalties than loans made directly by a lender. North Carolina recently banned YSPs and the Federal Reserve concluded that disclosures were insufficient in addressing the problem of these payments.



End prepayment penalties

Georgians should never be penalized for paying debt off early. A subprime loan should be bridge to better financing, not an anchor to high cost debt.



Require mortgage brokers to do right by the borrower

Brokers should only recommend loans that are suitable for the borrower. Not doing so equates to a higher risk of default.



Stop “flipping” or "churning"

This is the practice of repeatedly refinancing home loans to generate fee income without providing a net benefit to the borrower. Securities brokers have similar duties that were established in the 1930s and have been extended to mortgage lending in over a dozen states. Georgia homeowners deserve the same protection when making their most important financial transaction.





Protecting Seniors from Unsuitable Insurance Annities - (SB 95)                  SUPPORT

Link to Legislation, Votes and Status: http://www.legis.state.ga.us/legis/2009_10/sum/sb95.htm



Senator Renee Unterman (R-Buford) filed a bill last year to look out for older Georgians considering investment opportunities. Some annuities products don’t make sense for seniors because the money that is invested won’t be available for a number of years. For individuals in the later stages of their life, it’s very possible that certain investments may lock up their money until after their death, leaving that person with no benefit from their decision to devote funds toward future needs.



SB 95 requires that companies selling annuities ensure that the investment is suitable before selling to customers 65 or older. Other states have passed similar laws which have been key in returning funds to seniors who were tricked into an annuity that won’t mature for many years.



The bill passed the Senate last year, but now sat in the House Insurance Committee with no action. However, Rep. John Meadows (R-Calhoun) is the new House Insurance Chairman after Rep. Tom Knox (R-Cumming) stepped down to focus on his campaign for Insurance Commissioner. We are hopeful that Chairman Meadows will let this important bill have a vote and move forward towards final passage.





Expanding Eligibility of Health Insurance Policies - (SB 329, SB 330)                  SUPPORT

Link to Legislation, Votes and Status: http://www.legis.state.ga.us/legis/2009_10/sum/sb94.htm



SB 329 is a very simple bill authored by Judson Hill (R-Marietta) that would allow more young adults to remain on their parents’ health insurance policy. Georgia statutes currently require that the dependent children of parents with group health insurance (which is the most common type of policy offered by employers) must be in college in order to continue to be covered from age 18 to 25. SB 329 simply strikes that requirement from the law so that dependent children can remain on their parents insurance, regardless of the educational status. This will allow more young people to have insurance coverage after high school.



Last year, an identical bill (SB 94) passed the Senate but was amended in House Insurance Committee to very different legislation required for drawing down federal dollars to help pay for post-employment health insurance. We expect that SB 329 will also get out of the Senate and may get a fighting chance in the House Insurance Committee under new Chairman John Meadows.



It should be noted that the same provisions are present in SB 330, sponsored by Sen. Preston Smith (R-Rome). In addition to allowing more young adults to use their parents’ health insurance, SB 330 also removes a lifetime benefits cap on many health insurance policies and limits the ability of insurers to cancel policies when a paperwork mistake is made by a consumer.



That wraps it up for this week. As always, you can e-mail questions or comments to me. Remember, legislators need to hear from YOU -- the people they represent and the people who will be affected by these policy decisions.



To identify who your Senator and Representative are, go to www.vote-smart.org.

To find copies of these and other Bills, identify members of the Committees and how to contact them, track Committee meetings and votes or watch live or archived video of the House and Senate and select Committee meetings, go to www.legis.state.ga.us.