In Vermont, Slow But Steady Wins the Race
by Rob in Vermont, Tue Aug 25, 2009 at 10:07:06 PM EDT
An interesting article caught my eye last week on the front page of the Wall Street Journal, about how our state avoided the mortgage crisis and is weathering the national economic crisis relatively well. The article is titled Vermont Mortgage Laws Shut the Door on Bust -- and Boom.
You certainly do get a whiff of anti-regulatory sentiment from that title and the reporter's opening paragraph teaser:
In plenty of other states, Andrea Todd would have been a homeowner years ago. Here, she bought just this month -- a difference that helps explain how Vermont avoided the housing bust, and shows the possible pitfalls in President Barack Obama's plan to tighten mortgage regulation.
Yet if you read the article, the facts speak for themselves: Vermont's tough lending regulations have proven to be ahead-of-the-curve. That, combined with old-fashioned fiscal conservatism of our bankers, and nonprofit organizations' efforts to give good economic counseling to prospective home-buyers whom the bankers have turned down, have earned our state the lowest foreclosure rate in the nation - and our economy continues to expand while other states' economies are contracting. It's a tortoise and hare story: while it's true Vermont hasn't had a booming economy, we've kept a steady pace that over the long haul has kept us on par with the nation and ahead in our own region:
Vermont, with its fairly stable population, saw its economy grow relatively slowly -- its aggregate state product up 2.2% in 2005, 1.3% in 2006 and 1.7% in 2007. By comparison, Arizona and Nevada, which enjoyed population explosions, had economic growth rates as high as 8% during those years. But by last year, those two boom states had both contracted while Vermont continued to grow, at 1.7%.
Over the decade, such differences appear to have evened out. Vermont's economy grew 60% in the 10 years ending in 2008, just behind the 63% rate nationally, according to the Commerce Department. Vermont lagged Arizona, Nevada and California over the decade but outpaced most of its New England neighbors.
The article notes how Vermont regulators were quick to notice dodgy out-of-state lending practices that were appearing in the late 90's, and quickly established laws to counter them. While Vermont's strict modern laws (for example, lenders must announce if their rates are substantially higer than market rates, and mortgage brokers can be held legally liable if the borrower defaults) and Vermont bankers' traditionally conservative lending practices have indeed meant that many prospective homeowners have had a long wait, the folks interviewed in this article, such as Ms. Todd, weren't complaining about the wait time:
Banks wanted Ms. Todd to prove her [self-employment] income could support a mortgage -- in contrast with brokers in many other states who wrote loans without requiring proof of income. It didn't help, Ms. Todd said, that she wanted to put no money down, also commonplace in other markets.
Ms. Todd enrolled in home-ownership classes at the Champlain Housing Trust, the Burlington office of NeighborWorks. She gave up her business, returned to school and got a graduate degree in special education, she said.
Now she teaches at a nonprofit literacy center. Earlier this month, she closed on a $159,000 condominium with a credit-union loan of about $107,000. A Housing Trust grant covered the rest, including the down payment. The extra hoops were a "great thing" in the end, she figures.
"Five years ago if I'd gotten the loan," she said, "I would have been in over my head now."
Home ownership in Vermont is actually higher than the national average, though the article points out it did grow at a smaller pace than the nation's during the housing boom years, which of course isn't surprising given our laws and lending practices. This is my favorite quote from the article:
Jeffrey Carr, Vermont's state economist, defends the state's market guardrails. "The critics of the regulatory environment would say, 'Great, you prevented the car accident by never getting in the car,'" he said. "We got in the car, and we went the speed limit instead of going 70 in a 35-mile-an-hour zone."