Maryland needs to change its mortgage laws, improve outreach to vulnerable borrowers and create emergency funds for families in mortgage trouble if it is going to stem a rising foreclosure rate, a task force said yesterday.
The report by the Homeownership Preservation Task Force comes as Maryland's foreclosure rate shot up 370 percent from June 2006 to June 2007, moving the state from 40th in the nation to 15th for foreclosures.
"The foreclosure spike is a national phenomenon, and Maryland has not escaped the challenges," said Tom Perez, secretary of the Department of Labor, Licensing and Regulation, who co-chaired the task force.
RealtyTrac, a national foreclosure tracking company, estimates that there was one foreclosure for every 806 households in Maryland over the past year. While the state's rate grew 370 percent, the national rate was up 87 percent, RealtyTrac reported.
"Today, we're 15th," Perez said. "Our goal is to be 50th. We're moving in the wrong direction."
In June, Gov. Martin O'Malley established the task force and charged it with finding ways to curb the growing foreclosure problem. The task force report to the governor yesterday suggested stronger underwriting and lending standards, as well as more oversight for the mortgage industry.
It also called for better education to help homeowners avoid predatory lenders, and more access to better financial products for people purchasing or refinancing homes.
Perez said the immediate issue is homeowners on the verge of or facing foreclosure. One task force suggestion is the creation of a fund to provide case-by-case interventions to prevent foreclosure, allowing more stable monthly payments or time for a property sale to troubled owners.
Some of the recommendations to the governor will require changes in Maryland law "to rein in bad players and practices," according to the report. The report also recommends a regulatory change to increase the time between default and foreclosure to 90 days from 15 days.
"What you're not seeing in there perhaps are some specifics in terms of what it might cost to fund some of the programs" recommended in the report, said Jacqueline Lampell, spokeswoman for the Department of Housing and Community Development. "That's because we don't really even know what the full impact of foreclosure will be."
Foreclosures disproportionately result from subprime loans, those offered to borrowers who have less than optimal credit and have difficulty getting a traditional loan. Such loans tend to have higher interest rates and options such as adjustable and teaser rates, according to the report.
A Maryland Bankers Association survey showed that adjustable-rate mortgages in the state grew from 1.6 percent of the total mortgages in 2000 to 11.7 percent in 2007.