Legislators Seek to Stanch Spate of Home Foreclosures
Thursday, March 13, 2008
As the number of foreclosures in Maryland continues to climb, state lawmakers are considering one of the nation's most ambitious packages of legislation to control the housing crisis by strengthening homeowner protections and toughening oversight of the mortgage-lending industry.
Several bills are advancing in the General Assembly that, taken together, could prohibit the kinds of loans and predatory practices that contributed to the foreclosure crisis and create preemptive measures to help people at risk of losing their home.
The bills, most of which were proposed by Gov. Martin O'Malley (D), appear to be gaining broad support in the Democrat-controlled legislature, which could start voting on the proposals this week.
The measures would make the most egregious mortgage schemes cases of fraud and subject them to criminal prosecution. They would also prohibit prepayment penalties and "foreclosure rescue transactions" in which homeowners are tricked into signing over their homes to third parties, extend the foreclosure timetable from 15 to about 150 days and require independent preloan counseling for people seeking high-risk adjustable mortgages.
If passed, the laws would put Maryland at the "national cutting edge" in protecting people from losing their homes because of predatory lending, said Thomas E. Perez, who, as secretary of labor, licensing and regulation, has been the O'Malley administration's point person on foreclosures.
"There's a recognition that we need to really take a wholesale look at some of the practices that got us to where we are," Perez said. "The corrosive power of fine print has put many people on the brink of foreclosure. What we have done in these bills is parse out all those elements of fine print that are destroying lives."
The number of people losing their homes has been escalating at a startling pace. Last month, more than 4,000 foreclosure actions were taken in Maryland, a ninefold increase from February 2007, according to RealtyTrac, which maintains foreclosure data. Roughly one-third of the foreclosures have been in Prince George's County, by far the state's hardest-hit jurisdiction.
For legislators from Prince George's and other areas, the effort to pass foreclosure bills has taken on particular urgency.
"We can't leave Annapolis without having done something to address this issue," said Del. Melony G. Griffith (D-Prince George's). "I'm convinced that there's the political will to do that." The General Assembly session is set to end April 7.
O'Malley has also used strong language on the issue, saying last month that the foreclosure crisis is "the greatest threat to the strength and the growth of our middle class."
O'Malley's comments came as he announced emergency regulations requiring loan service companies to tell the state when residents are in danger of losing their homes so the government can help.
Many states are considering legislation aimed at stemming foreclosures. In Virginia, Gov. Timothy M. Kaine (D) has proposed requiring certain lenders to warn borrowers when they are at risk of foreclosure so they can try to get back on track with payments.
Maryland officials say the state's bills are among the most sweeping in the nation, and legislative leaders have said there has been little political opposition to them.
Republicans have not taken a formal position on the proposal, said House Minority Leader Anthony J. O'Donnell (R-Calvert).
The Maryland Association of Realtors backs the legislation. "We do think that a lot of the things that were included in the governor's package will produce very positive things," said William A. Castelli, vice president of the agency's government affairs division.
Lawmakers attribute the consensus to the way the administration drafted its proposals. Before the session, O'Malley convened the Maryland Homeownership Preservation Task Force, co-chaired by Perez. The group reviewed existing laws and came up with legislation that drew support from lawmakers, community advocates and others.
"By the time they introduced the bills, it was pretty much worked out," said Sen. Thomas M. Middleton (D-Charles), who chairs the Finance Committee, which oversees mortgage laws. "I don't know if we'll ever entirely prevent fraud or abuse in the future, but it's the best that we see we can get at to make some improvements."
Del. Brian J. Feldman (D-Montgomery), who chairs a banking subcommittee, said it is important to "go after the bad apples" without creating overly negative consequences for state-chartered banks.
But, Feldman said, "I think this is a good, balanced approach that tackles the problem but at the same time minimizes unintended consequences."
Lawmakers acknowledged possible limitations of the legislation.
"There are some people that we can't help, people who willingly and knowingly -- no scam, no nothing -- chose to buy a home far beyond their means, gambling on the hope that their home would increase in value the way the real estate market had been," said Del. Maggie L. McIntosh (D-Baltimore), who chairs a committee that oversees some foreclosure bills.
But the package of bills could go a long way toward preventing foreclosure crises, said Steven Silverman, chief of the consumer protection division of the attorney general's office.
"We're trying to close the barn door before the next group of horses" gets out, Silverman said. "In other words, we can't undo the loans that have already occurred. What we can do is put in place preloan counseling and consumer safeguards to make sure that this wouldn't happen again."