LANDOVER -- Gov. Martin O'Malley announced a wide-ranging plan yesterday to confront an unprecedented rise in home foreclosures and combat predatory mortgage schemes, including legislation to slow the minimum time for foreclosure from 15 days to more than four months.
The Democratic governor proposed new requirements for brokers and lenders to ensure that borrowers can afford the mortgages, changes to the state's foreclosure process to make it more consumer-friendly and a ban on the conveyance of property in so-called foreclosure rescue schemes.
O'Malley's administration also wants Maryland to become the second state in the nation, after California, to require that loan servicing companies file monthly reports about how many loans are in default and to document their efforts to help borrowers by refinancing or modifying the loan terms. State officials said there is a gulf between what servicers say they are doing and the actual assistance they are providing.
"We have heard time and time again that no one wins in a foreclosure," O'Malley said. "Well, if that is the truth, then we need the information so that we can tell which loan servicers are actually working with homeowners to actually stave off foreclosure."
O'Malley outlined his plan at a news conference on the front lawn of Velma Floyd, a Landover resident who almost lost her first home recently in a foreclosure rescue scheme, in which troubled homeowners refinance and are instructed to temporarily sign over the title of their homes. Floyd's broker is under investigation by state regulators and therefore wasn't named.
"We just want to keep our home, and we want to help others keep their homes," Floyd said.
Tens of thousands of subprime mortgages are expected to go into foreclosure in Maryland over the next two years at a cost of $2.7 billion in lost property value and $19 million in property taxes, according to the Joint Economic Committee in Congress. About one-fifth of homeowners with subprime mortgages in the state were late on their payments or in the foreclosure process during the three months through October, according to the Mortgage Bankers Association.
Foreclosures have risen alarmingly across the nation since the housing boom deflated and many borrowers began contending with higher monthly payments as interest rates on adjustable-rate mortgages increased. Many of the troubled borrowers took out subprime loans, which are designed for those with spotty credit histories and come with higher interest rates to offset the risk to lenders.
"These are really, really tough times," O'Malley said. "We are seeing a national economic downturn, and we are also seeing a real unprecedented crisis when it comes to foreclosures."
The administration also announced yesterday the "Bridge to HOPE" program to provide interest-free loans of up to $15,000 so that homeowners can catch up on their mortgage payments and avoid foreclosure. Raymond A. Skinner, secretary of the Department of Housing and Community Development, said his agency has moved $400,000 from its existing budgets to be able to make the loans with state dollars.
The HOPE loan program, announced last summer by O'Malley, didn't meet expectations. It would have directed $100 million to assist hundreds of homeowners refinance, but only 14 homeowners have qualified. That program was funded through the bond market, so participants had to meet minimum creditworthiness requirements. The standards for the new, state-funded program will be less restrictive.
Many of the governor's legislative and regulatory proposals came from a task force that included industry representatives as well as housing advocates. Administration officials hope that collaborative approach will lead to broad support for the proposals.
One legislative initiative would extend the time between the start of foreclosure proceedings and the point at which the house can be auctioned, which is now 15 days. Under O'Malley's plan, lenders would have to wait 90 days from the borrower's default to file a foreclosure action, and another 45 days until the foreclosure sale. Lenders also would be required to send a notice to homeowners of intent to foreclose.
Kathleen Murphy, president of the Maryland Bankers Association, said that the foreclosure reforms codify what most "responsible lenders" already do. She said the new notices would prompt borrowers who are late on their payments to call lenders to work out a solution. She said that lenders lose on average $68,000 per foreclosure and that it's in their interest to help borrowers.
Another bill would require that lenders screen borrowers for their ability to repay an adjustable loan once the rate resets and verify sources of income. So-called "no doc" loans, which became known as "liar loans," call for very little or no documentation of income, such as tax returns or pay stubs. Many of those loans have gone bad.
O'Malley also wants a criminal statute on mortgage fraud and a ban on prepayment penalties for subprime loans, both of which would enhance current laws on the books.
Regulatory changes include holding brokers, lenders and servicers to a "duty of good faith and fair dealing," a standard of care. Thomas E. Perez, Maryland's secretary of labor, licensing and regulation, has frequently said that it's harder to get licensed as a barber than as a mortgage broker in Maryland, and one regulatory change would increase the amount of experience needed to obtain a license.
"You can be assured that person is qualified to give you a loan," Perez said. "That person would be required to look after the public interest rather than just lining his own pockets."