Legislation aimed at helping Maryland homeowners avoid the rising tide of foreclosures cleared a House committee yesterday, paving the way for full House action this week on one of the O'Malley administration's priorities.
One administration bill approved by the Environmental Matters Committee would stretch out the time before foreclosure can take place, from 15 days to more than four months.
Another measure would make mortgage fraud a crime punishable by up to 10 years in prison or a $5,000 fine, or both.
The legislation enjoys broad support, though some Republican lawmakers object to a provision in the mortgage fraud bill that would let victims of shady practices sue lenders and brokers for punitive damages.
A third administration bill, aimed at cracking down on foreclosure rescue schemes, was approved by the panel earlier and is expected to be taken up by the full House this week.
The Senate Judicial Proceedings Committee approved a similar set of bills Friday, clearing the way for Senate action this week as well.
Del. Maggie L. McIntosh, a Baltimore Democrat who is chairwoman of the House panel, said the bills provide additional protections for Maryland's homeowners so that "some can hopefully avoid needless foreclosures."
Foreclosures have skyrocketed across the country since the housing market slumped, with many homeowners falling behind on monthly payments as the interest payments increased on adjustable-rate mortgages. Many of those in trouble had taken out "subprime" loans, usually peddled to higher-risk borrowers with lower incomes or poor credit histories.
Though the rate of foreclosures in Maryland is not as high as it is nationwide, the number grew by a record 150 percent last year. More than 13,000 homeowners in the state were facing loss of their properties at the end of the year, according to the Mortgage Bankers Association.
While some borrowers are in trouble because of risky decisions they knowingly made, others are facing foreclosure "through no fault of their own," McIntosh said. Besides helping lenders, she said, the foreclosure bill would enable the state banking commissioner to track and expose the "bad apples" involved in predatory lending schemes.
The administration's bills were recommended by a task force that O'Malley formed last year to deal with the growing number of foreclosures in the state.
Maryland's foreclosure process, one of the quickest in the nation, would be slowed under one bill. Foreclosure proceedings could not begin until 90 days after a loan goes into default. Lenders also would have to give delinquent borrowers 45 days' advance notice of their intent to foreclose and provide borrowers with information on steps they could take to avoid losing their homes.
Kathleen Murphy, president of the Maryland Bankers Association, said the foreclosure bill "codifies the best practices of responsible lenders."
Lenders welcome the requirements for giving borrowers more notice of impending foreclosure, Murphy said, particularly the requirement to advise borrowers to contact their lenders. Borrowers who fall behind in payments all too often fail to get in touch with their lenders, she said, but when they do, they are able to avoid foreclosure about 80 percent of the time.
The mortgage fraud bill follows similar legislation enacted in more than a dozen other states, according to legislative analysts. The bill would make it easier to pursue complicated lending schemes, proponents say, which now are tough to prosecute under existing theft laws.
But Del. Anthony J. O'Donnell, the minority leader from Southern Maryland, said he was worried that the mortgage fraud bill would make lenders and brokers "black hats du jour."
A provision allowing plaintiffs to collect treble damages would be "opening up a new realm for trial lawyers" at the expense of "an industry that's in distress," O'Donnell said.
Plaintiffs could collect punitive or treble damages only for willful violations of the law, as provided in other laws protecting homeowners, said Del. Doyle L. Niemann, a Prince George's County Democrat.
Niemann, an assistant state's attorney who specializes in white-collar crimes, said few prosecutors would have the staff to investigate mortgage fraud cases, so consumers need the ability to sue for civil damages.