If you're mad as hell over mortgage interest rates and the bankers who keep raising them, keep your eye on Colorado's unique FAIR constitutional initiative this fall.
"Fight Against Inflationary Rates," a drive to restrict leaders' abilities to raise interest rates on existing home loans, could be as significant for the real estate field as California's Proposition 13 was for government taxation.
FAIR is rapidly gathering momentum, has state and national lending organizations worried, and appears virtually certain of winning big with the voters at the polls. If it passes by a landslide, look for the same grassroots initiative to spring up in 1981 in a number of other states.
What FAIR's proponents want is a major change in the rules of real estate financing: a ban on the rights of lenders to prohibit assumptions of low-rate mortgages where the original borrower retains liability for the debt.
FAIR is aimed directly at the controversial "due-on-sale" clause contained in most mortgages written during the 1970s. That clause allows a bank or savings and loan association to demand immediate full payment, or to raise the rate, any time a borrower sells his or her house.
Disputes between consumers and lenders over the due-on-sale clause have been simmering for years in courtrooms and legislatures in dozens of states. But 1980's double-digit interest rates have brought the issue to a boil. Buyers haven't been able to afford the 13 and 14 percent rates required on new mortgages. Sellers have found their rights to transfer their existing below-market-rate mortgages blocked by the due-on-sale clause. Some home sellers who have tried to get around the rules by using "creative" financing -- land contracts, wrap-around loans and other devices -- have even ended up in foreclosure proceedings after lenders discovered their sales.
To Bill Riley, the outspoken 53-year-old Denver real estate entrepreneur who began FAIR, the due-on-sale clause is a symbol of everything that's wrong about mortgage lending and federal regulation in the United States.
"S&Ls want no risks and only guaranteed profits -- and they've got a bunch of pals in Washington who sit there writing regulations giving them everything they want," Riley says. "That's a lousy situation, a stacked deck against the consumer, and now we're mad as hell and not going to take it anymore."
The "pals" of the lenders in Washington, according to FAIR proponents, are the regulators of federally chartered S&Ls at the Federal Home Loan Bank Board. The bank board has adopted regulations permitting S&Ls to include due-on-sale language in their standard mortgage forms, and defends S&Ls' rights to ignore state banking regulations which conflict with federal rules.
"If we pass the constitutional amendment in Colorado, and the regulators in Washington tell S&Ls that they can still ignore the will of the people here, then you're really going to see something hit the fan," said Joseph Davies, the Denver attorney who drafted the FAIR amendment.
"We will get the voters out on the streets to picket every federal S&L in the state. We will boycott S&Ls, and demand that the state sue them for violating the Constitution. The people of Colorado are the ones who let S&Ls and banks operate here. We're the people who provide them their business and profits. Who is running things in this country anyway?
"Getting that message to Washington, loud and clear is what FAIR is really all about. It's a 'we-the-people' type of issue."
Faced with a growing campaign -- complete with bumper stickers, FAIR buttons, radio shows and mass mailings of literature -- lenders here are gearing up a public relations effort to fight back. Along with S&L and banking industry leaders in Washington and Chicago, they fear that Riley's initiative could snowball, and force Congress or the bank board to retreat on due-on-sale.
S&L executives argue that they need to protect themselves against unpredictable swings in the economy that push their current costs of money far beyond the interest yields on the mortgages in their portfolios. Without a due-on-sale clause, they say, the 30-year loans at 7 and 8 percent they wrote five years ago could be losers on their books for another 25 years -- passed along from buyer to buyer almost indefinitely. The inevitable effect of that, lenders maintain, will be to raise costs to new borrowers in order to compensate for the ongoing losses.
Denver opponents of FAIR are also making Riley himself an issue in their counterattack. Riley's firm, the largest volume commercial realty brokerage company in Colorado, does $200 million a year in business, much of it using financing techniques that FAIR would insulate against further legal challenge. The $250,000 Riley's firm has spent promoting FAIR is a business investment, not a contribution for the public welfare, his opponents charge.
Riley answers that, "They're absolutely right. FAIR is going to help anyone who wants to sell and buy houses in a free market. I believe in a free market."