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State rides to the rescue

Amid the widening housing crisis, Gov. Martin O'Malley plans to announce today an agreement with some of the nation's largest loan servicers to help homeowners who have fallen behind in their mortgage payments to avoid foreclosure.

Under the accord, GMAC, Ocwen Financial Corp., Litton Loan Servicing and other companies have agreed to follow certain practices when working with borrowers seeking to modify terms of mostly subprime or adjustable-rate loans they can no longer afford. Significantly, the servicers have agreed to a "cooling-off" period to ensure that borrowers don't lose their homes before they can get help.

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Industry officials and homeowner advocates say Maryland's efforts put it at the forefront of the national response to the housing crisis, which has led to increased foreclosures and declining property values across the country. The voluntary agreements come as the percentage of mortgages in Maryland that are overdue continues to increase, while the economy weakens and homeowners lose jobs or face other financial difficulties. In September, according to data collected from some loan servicers in the state, about one in 10 mortgages were two months late, an increase from one in 15 in February.

Few homeowners are able to work out arrangements with lenders to avoid foreclosure. Only 16 percent of Maryland borrowers who were two months behind in their payments negotiated such deals in September, according the state data that regulators began collecting this year.

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"Far too few people are getting meaningful help," said Thomas E. Perez, secretary of the Department of Labor, Licensing and Regulation, who will appear with O'Malley in Annapolis today.

The Democratic governor held a news conference at the State House earlier this year to chastise the loan service industry, saying troubled borrowers got busy signals or weren't able to obtain assistance when they sought help. He met with industry representatives shortly afterward, and his administration spent the past few months hammering out the voluntary agreements.

The six companies account for about 23 percent of the market. Others declined to sign the agreement, in some instances because they are national companies that make it a policy not to sign state accords. Countrywide Financial Corp. had signaled a willingness to sign but was then acquired by Bank of America Corp., said Vicki Schultz, senior adviser for consumer protection at the labor department.

California and Ohio have struck similar agreements with loan servicers.

The companies are essentially debt collection firms that bill and collect mortgage payments, and many didn't have the staffing or skills to handle a large increase in borrowers falling behind and calling to ask for help. In many cases, the number of delinquent borrowers continues to outstrip the ability of loan servicers to grapple with the problem.

"Time and time again, homeowners are coming to us and saying, 'I sent in a hardship package and they are not responding,' " said Phillip Robinson, executive director of Baltimore-based Civil Justice Inc., which counsels homeowners facing foreclosure.

Hardship packages include paperwork detailing a borrower's financial status that lenders require before renegotiating a loan.

Clients of the St. Ambrose Housing Aid Center, a Baltimore nonprofit group, have typically waited four or five months before learning whether they qualify for a so-called loss mitigation, which can include a loan modification, repayment plan or a short sale, said Anne Balcer Norton, director of the nonprofit's foreclosure prevention division.

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And while homeowners waited for a decision, servicers often continued foreclosure proceedings and piled on fees and penalties.

Under the Maryland agreement, the servicer is required to acknowledge receipt of a loss mitigation application within five days and to make a decision within two months. During that time, servicers agree to halt foreclosure actions and the accrual of fees and penalties.

Tim O'Malley, senior vice president of sales and marketing at AmeriNational Community Services Inc., one of the participating loan servicers, said the new requirements would "go a long way" to helping his company's customers avoid foreclosure.

AmeriNational, a subsidiary of St. Paul, Minn.-based American Bank, services about 15,000 mortgages in Maryland, about 8 percent of which are delinquent by at least two months, said O'Malley, who is not a relative of the governor.

He predicted that other servicers would follow suit, in Maryland and elsewhere. "From a national perspective, Maryland is the leader in this type of event," Tim O'Malley said.

Robinson said Maryland is able to put more pressure on servicers because it is one of only 11 states that directly license the companies. But though AmeriNational is licensed by the state Department of Labor, Licensing and Regulation, Tim O'Malley said his company was acting out of a desire to do the "right thing," not regulatory pressure. "We would have signed this, regardless," he said.

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HSBC Finance and Citigroup also signed on.

The accord calls for servicers to improve customer service and designate employees as contact points for Maryland homeowners, to create internal policies and incentives to encourage staff to modify loans rather than seek foreclosure, and to disclose their loss-mitigation guidelines.

Maryland officials said they have taken a multi-pronged approach to the foreclosure crisis. This year the General Assembly approved a package of legislation that slows down the foreclosure process, establishes criminal penalties for anyone who commits mortgage fraud and requires that lenders verify a borrower's ability to pay. The O'Malley administration also has rolled out refinancing programs.

Perez said he would also push loan servicers to reduce monthly payments, including by lowering the principal. According to data the state collects from some loan servicers, only one-third of troubled borrowers were able to get loan modifications as part of mitigation negotiations. Another third worked out repayment plans that involve the borrower making higher payments for a certain time.

FORECLOSURE HELP

Maryland's agreement with six loan-servicing companies calls for

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* A "cooling off" period to ensure that Marylanders don't lose their homes to foreclosure while waiting for help

* Improved customer service for troubled homeowners

* New company policies to encourage staff to modify loans rather than foreclose

* Disclosure of loss-mitigation guidelines

Retailers had the weakest October in 39 years, with little relief in sight. PG 16



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