Sara Gagliardi’s Bad Mortgage Bill

Rep. Sara Gagliardi, D-Arvada, my state representative, earned the special distinction of having a bad legislative idea dismantled by the fair-minded editors of the Rocky Mountain News:

Perhaps the best thing that can be said about the American Dream Protection Act of 2008, due to be introduced in the legislature at any time, is that it’s not likely to be as bad as many of its counterparts under consideration in other states – and in Congress.

Unlike those other measures, Colorado’s bill addressing home foreclosures, by Rep. Mark Ferrandino, D-Denver, and Sara Gagliardi, D-Arvada, would not require substantial public subsidies. Nor would it place taxpayers on the hook for a massive bailout if the credit crunch intensifies.

That said, if the bill as filed still resembles the original descriptions, it is a bad idea and would provide little relief to delinquent homeowners.

Anytime a legislator proposes a idea, and the best argument on its behalf is “it could have been worse,” that’s not exactly a ringing endorsement.

People who mean well often do quite the opposite – a truism that reflects much of the modern Left-liberal movement. No one doubts Rep. Sara Gagliardi’s good intentions, but the Rocky‘s editors excoriate her bill for the unintended consequences that figure to be reaped from its fiscal illiteracy:

Under current law, foreclosure is hardly a speedy process. It can easily take seven or eight months. Before a lender can file a foreclosure proceeding, a mortgage payment has to be at least 90 days late. The sale of the home must take place between 110 and 125 days after filing. Up to the date of the sale, the homeowner can “cure” the default and halt the foreclosure by catching up on delinquent payments and paying any back interest, late charges and the legal fees of the lender.

Ironically, any moratorium on a foreclosure may be just as likely to aggravate a particular problem as solve it. That’s because mortgage payments, interest penalties and late fees would continue to pile up – and the borrower would be responsible for those as well as the payments from the original period of default.

In other words, unless a homeowner hits the lottery, the delay would actually increase his indebtedness.

In addition to its serious fiscal shortcomings, Rep. Gagliardi’s legislation also may be patently unconstitutional, argues The Colorado Index – based on the fact it violates the U.S. Constitution’s prohibition on states “impairing the obligation of contracts.”

I am not formally trained in case law to offer any sort of professional opinion about the constitutionality of the Gagliardi-Ferrandino proposal. “Lawmakers should rarely allow third parties (in this case, judges) to rewrite the terms of duly negotiated contracts,” the Rocky‘s editors write. Whether or not it’s unconstitutional, the bill certainly doesn’t meet the necessary high threshold to violate negotiated contracts.

The so-called “American Dream Protection Act of 2008” is just a rotten idea. I hope to see Sara Gagliardi recant and withdraw it, or maybe her opponent John Bodnar – a longtime Realtor with extensive experience in the housing market – will make an issue of it.