As subprime mortgages collapsed, and homeowner after homeowner entered foreclosure, the inherent instability of lending vast sums of money to people with questionable credit, or means to repay it, was painfully exposed.

Maine is among many caught unaware by this seemingly obvious problem; other states have been hit harder by the subprime collapse, but all indications are Maine is going to get its due.

In subprime’s wake, there’s little lawmakers can do except ensure the conditions that gave rise to the mortgage frenzy don’t return. Maine’s Legislature passed the Homeowner Protection Act last session to control subprime lender practices.

Though a fine piece of legislation, there might be only a few for the law to regulate, thanks to the financial “natural selection” currently occurring among subprime lenders.

Part of the act requires the Maine Department of Professional and Financial Regulation to collect foreclosure data from banks chartered within the state, a duty now performed by, well, nobody local.

This has been an obstacle to developing a cogent picture of the subprime impact in Maine. In-state foreclosures have been gathered only by national firms or professional mortgage banking associations. Their numbers are likely accurate, but their work is divorced from those entrusted with consumer protection.

Foreclosures were the harbinger of the subprime mess; as the amount of defaulting homeowners increased, the confidence of the credit markets started to erode. Coupled with uncertainty over who owned this debt – these risky mortgages were traded like commodities – a crisis was born.

The ripple effect is global. A recent bank bailout in the United Kingdom was blamed on the subprime situation, as is the plummeting value of the American dollar versus its European counterparts – the Euro and the British pound – and Canada’s now-potent “loonie.”

It makes great sense to identify fault lines before the earthquake. Maine is wise to finally track this data, for that reason. The question now is what to do with it, aside from giving annual reports to the Legislature.

The state should find new, insightful ways to utilize foreclosure information to keep a wary eye on Maine’s housing and consumer credit environment. Combined with traditional economic indicators – unemployment, wages, etc. – an accurate accounting of Maine foreclosures could become a valuable analytic tool.

Since the subprime decline, the power to predict foreclosures has become clear.

It’s time regulators put that power to use.


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