North Dakota sets exampleBISMARCK, N.D. — As Rodney Dangerfield said, “I don’t get no respect.” Until recently, this was North Dakota’s lament.
By: Derrick Braaten, Special to Agweek
BISMARCK, N.D. — As Rodney Dangerfield said, “I don’t get no respect.” Until recently, this was North Dakota’s lament.
But now, it is common to see positive — even envious — stories about North Dakota’s economy, institutions such as the Bank of North Dakota and quality of life. One area of positive difference between North Dakota and the rest of the country is the home mortgage and banking crises that devastate entire economies and thousands, if not millions, of families elsewhere are not crises here.
Though present-day officeholders claim credit, I submit this positive state of affairs is because of Non-Partisan League politicians who adopted state and federal laws providing strong debtor protections many years ago. And I further submit if laws modeled after North Dakota debtor protection laws were adopted by Congress and other states, it still might be possible to stop the freefall of homes in foreclosure and start to heal the economy.
Of course, North Dakota learned the lesson of the value of debtor protection laws the hard way.
Ninety-five years ago, when the NPL first emerged, and again in the “dirty 30s,” we were on the brink of economic collapse, and the biggest symptom of this collapse was farm and home foreclosures on an unprecedented scale.
Based on those bitter experiences, North Dakota adopted — and largely has kept in place — a system of strong debtor protection laws. While I call them “debtor protection laws,” they do not just protect debtors, they also protect lenders from their own greed and folly. Greed and folly have been much in evidence by lenders nationwide.
North Dakota is a better place because of these laws, and laws like these could help the nation.
A big debate raging nationally is whether federal incentives should be fashioned to compel lenders to accept a “stripped-down” value of a home loan — the value of the home at the time of foreclosure or default, rather than the value that it had before the home market collapsed — in exchange for federal help.
I don’t have time to summarize the arguments pro or con in this column, but in North Dakota, subprime lending wasn’t attractive to lenders and wasn’t extensive, if it existed at all. Why? Strict debtor protection laws made it virtually impossible for a lender to collect more than the foreclosure value of a home or farm. We have strict limits on “deficiency judgments,” and banks can’t put costs of foreclosure — such as attorney’s fees — on debtors. In these circumstances, it isn’t sensible for lenders to make stupid, speculative loans.
North Dakota politicians also were instrumental in fashioning national laws that helped to protect farms and ranches in the 1930s and 1980s.
These farm laws could be used today as models to help protect homeowners caught in a crisis not of their own making. The “granddaddy” of these laws is the Frazier-Lemke Farm Bankruptcy Act of 1934, named for North Dakota NPLers Sen. Lynn Frazier and Rep. William Lemke.
The act restricted the ability of lenders to repossess farmland through 1948. When the farm economy worsened again in the 1980s, President Reagan signed the Agriculture Credit Act of 1987, which incorporated a variety of debtor protections. Several were modeled after the Frazier-Lemke Farm Bankruptcy Act and North Dakota laws. These simple and sensible tools, if appropriately applied to delinquent home mortgages and their lenders, would help resolve the home foreclosure crisis of 2010 and prevent repeats of the same problem.
When Congress resumes, I suggest this as its initial project.