Seeking to reduce the risk of Marylanders losing their homes because of the state's quick foreclosure process, Gov. Martin O'Malley plans to announce today $111 million in private-sector commitments for refinancing and to create a task force charged with studying reforms to protect homeowners.
O'Malley plans to announce the creation of the Maryland Homeownership Preservation Task Force, which will be charged with developing a comprehensive homeownership preservation plan and with finding ways to mitigate the negative outcomes of foreclosures, which state officials worry will rise with the proliferation of subprime lending.
The state has offered refinancing assistance for homeowners suffering from rising payments tied to adjustable-rate mortgages for the past year, and the $111 million in loan commitments will be targeted to further help prevent foreclosures.
"We're really trying to get ahead of a looming crisis," said Raymond A. Skinner, the state secretary of housing and community development. "We do see signs that the rate of foreclosure is increasing, and we want to get ahead of the game."
According to the state housing department, the foreclosure rate in Maryland remains about half the national average, but the number of delinquent loans in the state is growing rapidly and is expected to climb further as payments on adjustable-rate mortgages issued during the housing boom start to jump in the next year.
Complicating the issue, advocates and O'Malley administration officials say, is a foreclosure law that gives Maryland homeowners less protection than residents of nearly any other state in the nation. Under current law, a home can be foreclosed upon and sold 15 days after a notice is sent out, whether the homeowner receives it or not.
Last week, The Sun reported the case of Kwaku Atta Poku, a Columbia man who lost his home and was evicted with his wife and children after a refinancing, despite making every mortgage payment. He learned of his plight only when investors showed up at his townhouse to inspect it before it went up for auction. It was sold before Atta Poku could mount a legal challenge, and he has amassed tens of thousands of dollars in debt trying to regain possession of it.
Philip Robinson, executive director of Civil Justice Inc., a nonprofit legal aid association that concentrates on predatory real estate practices, said several steps can be taken to cut down on the number of foreclosures in Maryland that could win passage in the General Assembly.
First, he said, is extending the time frame for foreclosure from 15 days to perhaps 60, a change that would give homeowners sufficient time to fight the proceedings or to sell their property so they can pay off their debts and salvage some of their equity.
Other important reforms, Robinson said, would be to require that homeowners receive notice of foreclosure, as they would for a subpoena, and to allow those with a legitimate defense - such as Atta Poku - the opportunity to seek a stay of the proceedings in court.
Skinner said the time period for foreclosures and the notice provisions are two key areas the task force will examine, with the goal of preparing legislation in time for January's General Assembly session. A state Senate committee also plans to study the issue over the interim.
The state will also work to develop better counseling for mortgage applicants and programs to help homeowners in danger of foreclosure.
Where remedies become more difficult to enact is in taking steps to prevent mortgage brokers from steering people to loans they will be unable to repay, Robinson said.
"I'd love for everyone to be a homeowner, but at every moment not everyone is qualified to be a homeowner," Robinson said. "Some borrowers need to take affirmative steps to get their finances in order before becoming a homeowners, but the underwriting laws that some brokers have been manipulating have allowed unqualified individuals to buy above their means."
Illinois attempted to cut down on predatory lending in 2005 through a pilot program that would have required borrowers in certain Chicago neighborhoods to undergo counseling before they could take out nontraditional loans.
But the effort proved controversial. In February, Illinois Gov. Rod R. Blagojevich announced that he was suspending the program after complaints from lenders that it was tying their hands, and after a University of Illinois study showed that housing sales in the affected areas dropped by half. Blagojevich proposed a new program in which counseling is voluntary.
Thomas E. Perez, the Maryland secretary of labor, licensing and regulation, said the governor has asked his department to step up its efforts against companies that use deceptive practices to entice people into taking out loans they can't afford. He said one of his top goals is to develop an early-warning system to flag companies whose loans frequently result in foreclosures.
"What we find is there is all too frequently fraud and deception in making these loans," Perez said. "Too often the corrosive power of fine print transforms the American dream into the American nightmare. People are told one thing when they go in for a loan, and then you get to the table and you're signing 40 documents and you seldom read them, and it's only after you've signed that you realize the terms on day one are not the terms at closing."
Roy Miller, the homeownership coordinator of Belair-Edison Neighborhoods in Northeast Baltimore, said the foreclosures he sees result mostly from people getting duped by too-good-to-be-true offers for mortgage refinancing.
He said homeowners will refinance to pay down credit card debt or to make home improvements and take on an adjustable rate loan that gives them low payments for the first few years but then socks them with hundreds of dollars in additional payments every month, once the introductory period expires.
"It puts people in a bind where they can't handle that kind of dramatic increase in payments," Miller said. "They fall behind on their mortgage, and once they get behind without understanding the actual nuts and bolts of the [loan], they may miss a month, and at that point their credit takes a hit and they aren't as readily able to get out."
Mary Warlow, the marketing director for the Belair-Edison group, said the toll of predatory lending extends beyond those who lose their homes.
The community has seen a general upsurge in recent years in property values, homeownership and commercial activity, but foreclosures have been a drag on revitalization, she said. Of the 6,500 homes in the community, 144 were foreclosed on last year.
"That might not sound like a huge percentage of homes, but if it happens on your block it can be a problem," Warlow said. "Some of the problems we've seen with foreclosed properties is they can become abandoned. It could be weeds or trash accumulating, or it could become a haven for people to hang out and then it becomes a nuisance to neighbors. ... It affects the wealth of the community and, I think, the emotional wealth as well."