With the number of home foreclosures on the rise again in Maryland, Gov. Martin O'Malley's plan to require mediation before banks can begin proceedings to seize the houses of delinquent borrowers is a good idea, but it doesn't go far enough to help struggling property owners stay in their homes. What's needed are more resources to ensure adequate legal representation for troubled homeowners who have been the victims of predatory lenders.
Unscrupulous brokers and agents pocketed millions in fees during the housing bubble by targeting unsuspecting borrowers whom they knew could never repay the loans. Many of those homeowners are now losing their houses because they didn't know how to navigate the thicket of state and federal lending laws or interpret the fine print on their mortgage notes. But many could stay in their homes if they were able to obtain qualified legal guidance.
In addition to requiring mediation, as Mr. O'Malley intends to propose when the General Assembly returns in January, lawmakers need to increase funding for legal assistance to homeowners through nonprofit groups like the Legal Services Corporation, especially in areas of the state like Baltimore and Prince George's County, where low-income and minority communities have been particularly hard hit. Expanding access to the courts for homeowners facing foreclosure could help stabilize troubled neighborhoods and arrest falling home values until the market recovers.
Last year, the O'Malley administration pushed through a package of reforms aimed at helping struggling homeowners stay in their houses. They included slowing down the foreclosure process, establishing criminal penalties for mortgage fraud and requiring lenders to confirm borrowers' ability to pay. The package also included refinancing programs to help people who owe more than their houses are worth because of plummeting home prices and a public service campaign to encourage homeowners in trouble with their lenders to seek help from nonprofit housing counselors.
These reforms offered a temporary respite, but as unemployment continued to rise, the number of foreclosures also resumed climbing, nearly doubling in the past year. Many people are now just a paycheck away from losing their homes if they lose their jobs; others are threatened with eviction as a result of catastrophic illnesses that have left them unable to pay both their mortgages and their medical bills.
A recent report by the Brennan Center for Justice at New York University School of Law found that between 60 percent and 86 percent of homeowners facing foreclosure in the jurisdictions it surveyed were unrepresented by counsel last year. Low-income and minority homeowners in areas targeted by subprime lenders were the most vulnerable, researchers reported, with up to 92 percent of them facing foreclosure proceedings without the advice of counsel.
As a result of last year's reforms, the state has taken some positive steps. A pilot program in Prince George's County backed by the Maryland Bankers Association allows homeowners to seek mediation if they can show the loan involved fraud or if the lender didn't meet other requirements enacted by the legislature.
And some lenders are working through a federal loan modification program aimed at avoiding foreclosure for borrowers who want to stay in their homes, although the process remains painfully slow.
Mediation, which depends on voluntary agreement between lenders and borrowers, can be a useful tool to settle disputes if both sides negotiate in good faith, and we applaud the governor's readiness to build on his previous foreclosure reforms. But the predatory lenders who are responsible for the most egregious abuses aren't likely to own up voluntarily to their wrongdoing. In those cases, the state must do everything in its power to ensure that innocent victims of such schemes can have their day in court.
Socialism is on its way, and people better wake up because there will be so few of us paying for it. What can we give the non-productive next? We pay for their mortgages, their heating, their food, their kids ...