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The Vermont Approach

My apologies for the lack of recent posts; I was on vacation with the family in Vermont and Chicago/Wisconsin. Speaking of Vermont, a story on the front page of the Wall Street Journal today looks at why that state has the lowest foreclosure rates in the country. It’s because Vermont has some of the most rigorous mortgage lending laws, requiring mortgage brokers, for example, to have a fiduciary duty toward borrowers, that puts them partly on the hook if a client defaults.

The Journal story seems to imply that the regulations came at a cost to economic growth, but then later states that growth “evened out” over the decade, with Vermont’s 60% growth rate in the ten years ending 2008 coming in just behind the national growth rate of 63% in the same period.

The Journal article also says the restrictions came at a cost to certain Vermonters, who were shut out of the housing market until they improved their credit scores, could verify their income and took homeownership classes. And yet both of the people interviewed say they would have been in trouble if they’d been approved for a mortgage early on.

One woman’s husband subsequently passed away; she says:  “With my husband gone, I really think I would not have been able to keep the house” under earlier loans they had considered.

 

The other, a former landscaper who became a teacher, says, “Five years ago, if I had gotten the loan, Iwould have been in over my head now. ” And both of these responses were at the very end of the piece! Sounds to me like the Journal buried the lead, and Vermont’s program, or at least elements of it, offers a model for national mortgage regulations.

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