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Changes suggested to stave off foreclosure and its ill effects

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A state task force is recommending a raft of changes to give Maryland homeowners a better shot at avoiding foreclosure and — when foreclosures do happen — to give neighborhoods a greater chance at recovering.

The suggestions, presented Wednesday to a House committee, range from voluntary mediation before a foreclosure case is filed to tax incentives for homeowners who purchase a foreclosure.

Some, including those two examples, would require legislation. But many of the recommendations are intended to be just that — recommendations. Most Maryland loans are serviced by national banks that the state cannot regulate.

But the Maryland Bankers Association, which was part of the task force, says its members are interested in giving the ideas a try. And Maryland's deputy commissioner of financial regulation says the state will be encouraging and prodding mortgage servicers to put what bankers on the task force agreed were "best practices" into actual practice.

"I think it sends a message — and we hope to use this as a launching point for a national dialogue with our federal partners who … can compel action," said Anne Balcer Norton, with the state Department of Labor, Licensing and Regulation. "This is just the starting point."

Kathleen Murphy, president of the Maryland Bankers Association, brought two colleagues to the Wednesday hearing before the House environmental matters committee to show support for the group's recommendations. The fact that many of the suggestions aren't intended as mandates appealed to her members, she said, because big banks don't own most of the loans they service and have to make sure they're following varied requirements set by the mortgage holders.

"There is not a one-size-fits-all approach," Murphy said.

The task force is the third related to foreclosure convened by Gov. Martin O'Malley since mortgage delinquencies began spiking in 2007. A spokeswoman for the Democrat said O'Malley is still firming up his legislative priorities and will announce on Monday whether he will press to make the changes called for in the latest report.

The foreclosure crisis doesn't appear to be nearing an end. But there have been fewer foreclosures in recent months — the temporary result of the nationwide "robo-signing" scandal that exposed shoddy foreclosure practices and fraudulent court filings.

Raymond A. Skinner, secretary of the state Department of Housing and Community Development, said Wednesday that he anticipates "a significant uptick" as backlogs start working their way into the system.

One of the task force's ideas would expand foreclosure mediation in Maryland.

The state already requires mortgage servicers to go to court-supervised mediation with homeowners who request it, but only after a foreclosure case is filed. The task force suggested an option for mediation before that point — if both sides agree — because the further behind a borrower gets, the harder it is to work out a loan modification or other foreclosure alternative.

The group also suggested a "Neighborhood Conservation Tax Credit" for foreclosure buyers who move into the homes, aimed at counteracting the community damage done by vacant properties. The task force envisioned state legislation that would give local governments the ability to create property tax credits for use in communities that need the help.

And task force members want the state to create a foreclosed property registry to attack a common problem: After a home hits the foreclosure auction block, it's often not clear for months — sometimes more than a year — who owns the property and how to contact them. Code enforcers, neighbors and homeowner associations struggle to track down people responsible for maintaining foreclosures in this "limbo period" after the auction but before the purchaser records the deed.

Recommendations that aren't intended to lead to legislation include:

•Reducing mortgage principal for borrowers whose home values have dropped below the amount they owe, possibly by turning the reduced amount into a separate loan forgiven over time and allowing the mortgage holder to share in any profits if the homeowner sells

•Helping Marylanders who lose their homes to foreclosure stay on as renters or buy their homes back at the reduced prices

•Encouraging developers to purchase, fix up and manage foreclosed homes as rentals, moving inventory from the rough housing market to the strong rental market

Marceline White, executive director of the Maryland Consumer Rights Coalition, testified in favor of the task force recommendations. She said she is heartened that members are suggesting changes she wants to see, such as principal reduction.

"The question is how many banks adopt these best practices," she said after the hearing. "Let's have these in practice, not in principle."

jhopkins@baltsun.com

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