Anticipating the next wave of delinquent mortgages or, worse, foreclosures in Maryland, the O'Malley administration has put together a $111 million refinancing package to help homeowners with money woes hang on to their homes. That may sound like a lot of money, but it will offer refinancing options for just 1,500 borrowers. Consider it the first barricade in defense of Marylanders caught up in the subprime mortgage mess.
To help prevent new buyers from taking on more than they can afford, the package includes $1 million for homeownership counseling, which any first-time buyer should take advantage of. Many homeowners now at risk of losing their homes were enticed by subprime mortgages that offered unbelievably low initial interest rates that later rose and required payments beyond their means.
Nationally, the number of late payments and foreclosures on adjustable-rate mortgages rose to a record high in the first three months of this year, according to figures released last week by the Mortgage Bankers Association. Maryland posted increases as well, though not as steep as the national figures: 5,700 homeowners were in foreclosure and 36,700 were late on their mortgages in the first quarter. But state Licensing Secretary Thomas E. Perez warns of a rising trend, noting that the state ranked 22nd nationally in foreclosures last month, up from 40th in 2006.
The state's refinancing initiative is designed to provide relief and leverage help from private lenders. To complement that effort, Mr. Perez's office has received new funding to hire four more investigators to review complaints against the lending industry. Tougher enforcement has to be a part of this effort. In the past year alone, state investigators recovered $2.2 million in illegal refinancing or mortgage fees that consumers paid.
State actions alone won't be enough, because Maryland regulates most but not all of the lenders doing business in the state; federally chartered institutions are subject to federal rules. The Federal Reserve Board should review underwriting practices so lenders base their loans not on a buyer's ability to pay the low interest rate but on his ability to pay the larger, troublesome rates that follow. Lenders also should be made to verify a borrower's ability to pay.
The crisis of subprime mortgages may have reinforced the adage "buyer beware," but it also has exposed aspects of the industry and the law that contributed to the problem. And they need to be changed.