When Marylanders go to the settlement table to purchase a home or refinance a mortgage, they may now also be helping to provide affordable housing for state residents.
Under a law that took effect Thursday, interest earnings of less than $50 from real estate settlements will fund the newly created Maryland Affordable Housing Trust. The trust, a non-profit administered by an independent board, will use the money to fund housing and related services for the poor.
The program to divert interest on escrow accounts was created by state legislators, despite bitter opposition from title companies. And some of that feeling endures today.
In the past, title companies have kept the interest earned on escrow accounts. After a settlement, all money is usually pooled with funds from other settlements in a title company account, where it stays for a few days while checks clear and are sent to the proper recipients.
Because the money is pooled, it's difficult to determine how much interest each settlement has generated.
But the title industry says that earned interest has helped them keep costs down. Taking away that money will force title companies to raise prices -- driving the highest closing costs in the country even higher, said Bill Pitcher, legislative counsel for the Maryland Land Title Association, a professional organization of title companies, title insurers and real estate attorneys.
"The title companies view it as a tax on their particular industry," he said. "They're not saying that the program itself isn't worthy . . . but the state is obligated to provide housing for poor people and it is not just the obligation of the title industry."
No one knows how much money the new law will generate for the affordable housing fund. Projections have placed the figure at about $1 million during the first nine months of the program, with $2 million expected during the second year.
"For any single borrower, it doesn't amount to much money," said Sen. Laurence Levitan, D, Montgomery, chairman of the Senate Budget and Taxation Committee and one of the sponsors of the successful bill.
"The money from each transaction is only in the bank for a few days," he added. "If you had to allocate it, the amount would be very insignificant. But when you multiply by hundreds of transactions . . . there's a lot of money involved."
The Maryland Affordable Housing Trust will consider proposals from non-profit or for-profit corporations to create low-income housing through renovation, new construction or procurement, said Robert Goodman, director of the Office of Research and Information Systems for the Maryland Department of Housing and Community Development.
"The law also allows for assistance to non-profit housing groups to help them build their capacity to buy, construct and manage affordable housing," added Mr. Goodman, who will provide staff services for the board. Funds for counseling and "homeless prevention" may also be available.
Gov. William Donald Schaefer has not appointed the trust's 11 voting board members. But housing advocates already have met to discuss issues they want to bring before the board, said Ruth Crystal, executive director of the Maryland Low Income Housing Coalition.
"For five years, my organization has been trying to get an affordable housing trust in Maryland," Ms. Crystal said. "I was there in the gallery when it passed and a bunch of us jumped up and shrieked. We were delighted."
The Maryland Affordable Housing Trust will replace the Maryland Housing Resource Corp., which was created several years ago but never got off the ground because of funding problems. The MHRC has supported the development of the trust, said its chairwoman, Alice G. Pinderhughes.
For information about the affordable housing trust, call Mr. Goodman at (410) 514-7179.