Kue McIntyre of Northeast Baltimore fell behind on her mortgage payments, but she didn't know how dire the situation had become until a housing advocacy group called to ask if she needed help fighting her foreclosure.
She hadn't received a notice that a foreclosure had been filed. It isn't required under state law.
"I really feel they shouldn't set up a person to fail, and that's the way I feel right now, that they set me up to fail," said McIntyre, who is scrambling to find another lender or arrange for a quick sale, now that she has lost her job and her adjustable-rate mortgage has started to rise.
As the subprime mortgage debacle has left many homeowners in trouble, Maryland's foreclosure process and lending industry are expected to come under scrutiny by the General Assembly. Gov. Martin O'Malley plans to propose tomorrow a number of changes to slow down the foreclosure process and make it more transparent, to increase oversight of mortgage brokers and to establish criminal penalties for mortgage fraud.
O'Malley's push to stem the rising tide of foreclosures comes as tens of thousands of subprime homeowners in Maryland are expected to go into foreclosure and possibly lose their homes over the next several years - and as previous attempts by his administration to help troubled homeowners have fallen short.
"The reality is we have to do more," said Thomas E. Perez, Maryland's secretary of labor, licensing and regulation. "We've only helped a small fraction of the people in need. We are planning to move fast on this for the simple reason that there are people in danger of foreclosure today, and time is of the essence."
The sheer size of the subprime industry has made wholesale solutions difficult. The number of subprime mortgages in Maryland grew from about 52,600 in 2000 to 502,350 in 2006, according to the Mortgage Bankers Association.
In Maryland, about one-fifth of homeowners with subprime mortgages were late on their payments or in the foreclosure process during the three months through October, according to the bankers association's latest data.
Additional delinquencies and foreclosures are expected as adjustable-rate mortgages, which became popular during the housing-market boom because they allow for lower initial monthly payments, reset to higher interest rates over the next year.
State and federal efforts to help troubled homeowners have been complicated by a number of factors. Some market-based solutions have stalled because fewer lenders are willing to extend credit to subprime borrowers, who typically have spotty financial records. At the same time, taxpayer-financed solutions might be unpalatable or impossible, given strapped government budgets.
Any effort to direct state dollars to programs for troubled homeowners in Maryland will run headlong into budget constraints. The General Assembly approved a budget-balancing package that included tax increases and spending cuts in a special session late last year, and lawmakers say that there's not a lot of appetite for new spending measures.
Maryland's efforts to help homeowners have met with little success. This summer, as the credit crunch intensified, O'Malley created the HOPE program to direct more than $100 million to assist hundreds of homeowners in refinancing exotic mortgages and to avoid foreclosure.
But only 14 homeowners have gotten help through the program, which was too restrictive for many troubled borrowers. The program was funded through the bond market. That meant borrowers had to meet certain restrictions, such having a credit score above a certain level, to ensure that the loans could be sold to investors.
The Maryland Department of Housing and Community Development is tweaking the program so that more people qualify.
The agency is also working on a loan program for borrowers who are already delinquent that would involve a partnership with lenders. And the agency is looking to create a crisis-intervention fund, which would involve short-term loans to help borrowers stay current on their mortgage payments until they can refinance.
"We're trying to take from our existing resources," said Bill Ariano, deputy director of community development at the housing department. "One person joked that we need to have a bake sale."
While the political furor over the subprime crisis could provide momentum for legal reforms in Annapolis, political observers say that there are bound to be skirmishes between consumer advocates, business leaders and lawmakers over the details.
And both Democratic and Republican lawmakers say they want to tailor their proposals to ensure they aren't bailing out borrowers who made poor financial decisions or speculative investors who took out risky mortgages in house-flipping schemes only to get caught in the plummeting real estate market.
"The most important thing anyone purchases in their lifetime is their home, and we want to make sure they have all the consumer protections that are available to them," said House Speaker Michael E. Busch, an Anne Arundel County Democrat. "At the same time, we can't micromanage everyone's individual responsibility."
As legislators begin hearings this week, they are expected to focus on the foreclosure process, which is one of the fastest in the nation and which has been challenged in court. Housing advocates had hoped that the case of Columbia resident Kwaku Atta Poku would force changes in state law, but last week Maryland's highest court dismissed his challenge to the foreclosure on his home.
Atta Poku lost his home to foreclosure, though he never missed a payment. The settlement company failed to ensure that refinancing proceeds were used to pay off an earlier mortgage. The Court of Appeals dismissed his suit on technical grounds.
O'Malley is expected to propose lengthening the time between the start of foreclosure proceedings and the point at which the house can be auctioned, which is now 15 days. The process is so quick, housing advocates say, that subprime borrowers in recent months have not had time to refinance or renegotiate a loan before the sale goes through.
"We're seeing people right around the holiday who are losing their homes," said Michelle Moore of the Association of Community Organizations for Reform Now, or ACORN, the advocacy group that contacted McIntyre.
Mortgage industry officials say that lenders usually wait before initiating a foreclosure because they typically lose money in such a sale, so that it actually takes four to six months after a payment is missed.
The administration also intends to propose that brokers adhere to a standard of good faith and fair dealing, a legal standard of care, and that they demonstrate the loans they write have a tangible net benefit to the borrower.
In addition, the administration wants a criminal mortgage fraud statute that would apply to all the players in home loan transactions, including real estate agents and appraisers. Perez said that state officials recently handed over to federal investigators a case involving Metropolitan Money Store Corp., a Lanham-based company accused in a foreclosure-rescue scheme, because the state doesn't have adequate laws to handle the case.
"There is a statute on the books, but it's Swiss cheese," he said.
Another proposal advocates have floated is to require that consumers get pre-loan counseling before signing up for a subprime loan. Borrowers seeking to take out a reverse mortgage in Maryland must already get such counseling.
"There's always a new product out there for creative financing," said Steve Silverman, chief of consumer protection division at the attorney general's office. "We just need to ensure that people will not be able to get loans that are bad for them."