Maryland Lawmakers Address Mortgage Crisis

The Maryland General Assembly has passed sweeping aid bills to help homeowners facing possible foreclosure. Phillip Robinson, executive director of the non-profit legal aid group Civil Justice, was online Monday, April 7 at 11 a.m. ET to discuss how the legislation could provide relief from the mortgage crisis.

A transcript follows.

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Phillip Robinson: Today is the last regular day of the 2008 session of the Maryland General Assembly. For Maryland Homeowners in foreclosure much effort has been made to modernize Maryland's foreclosure process so that it is more fair and reasonable. However, two key bills remain in doubt and without their passage homeowners are still at risk. What would you like to know about Maryland's foreclosure process?

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Falls Church, Va.: Why should buyers in Maryland get relief? I recently sold my home in Bowie, and most of the people who stopped by my house required 100 percent financing. There was even a couple who had just sold their house, and had planned to buy a bigger house with one of their parents, but still could not qualify, because they wanted 100 percent financing and their mortgage banker told them that they had to pay off their two cars first.

I couldn't understand why a couple would need 100 percent financing right after selling their home. Why should the government bail out irresponsible people on the backs of responsible taxypayers?

Phillip Robinson: I completly agree that 100% financing is not good and these home buyers should have been looking for something they can afford as opposed to trying to maximize their debt load. The professionals who are facilitating the process need to tell the buyers this fact instead of steering them to your property which was out of their price range.

Maryland has not passed any bailout legislation that I know of...just modernized a 200 year old process to ensure homeowners have reasonable rights and lenders have adequate protections to their secured interests.

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Waldorf, Md.: I think that if the Maryland General Assembly was serious about helping the citizens here they would take a look at the property tax assessment system, particularly the appeal system. My husband and I recently appealed the assessment of our house in Waldorf. Charles County decided our house is valued $40,000 more than what it was built for in 2005. Houses improved beyond ours in our neighborhood are selling for $30,000 less than the "market value" stated by Charles County. The builder has dropped their base price of our model to $38,000 below what we paid. We appealed with detailed information to this effect. We lost our appeal. But the annoying part is that we were only sent a form letter denying our appeal, with no information as to why. I think that this is a problem. Charles County, as are many counties, are low are funding (granted I think that Charles County is ridiculous in that they want to build a school with a planetarium and other such nonsense), but I get the impression that they are denying every appeal without basis merely because they need the increased revenue. Why can't this situation be looked into? Who oversees these people? Why can't these people provide reasons for a denial?

Phillip Robinson: there is a remedy for this and it sounds like you have only gone the first step. But you must keep appealing within the strick timelines. You may need an attorney to help or at least consult. The problem you have is that the time and expense to appeal may not actually result in a difference in the end. I recommend you contact your state delegation including Senator Middleton at (410) 841-3616 or (301) 858-3616 and share your concern.

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Upper Marlboro, Md.: Adjustable loans (ARM, HELOC and the likes)

can we suggest some type of streamline process to fix these rates in this lower rate environment. The streamline process would involve no appraisals, no credit check just simple fix your rate with your current mortgage provider, they already have your loan.

Phillip Robinson: the process for most homeowners and lenders in trouble with an adjusting loan is to start with a certified housing counselor who can negotiate with the lender such a reversion. It is entirely possible for homeowners to make a reasonable payment and allow the lender to make a resonable profit. Housing counselors can help. A list of qualified agencies in Maryland can be found on www.mdhope.org

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Rockville, Md.: Why should the roughly 10 percent of people who were irresponsible and borrowed more then they could afford to be bailed out the other 90 percent of us, who pay their mortgage on time? This isn't some national crisis the media and politicians like to make it out to be. It is 10 percent of new homeowners who bit off more then they could chew, and to correct the market, these people have to meet their fate of loosing their home. Why should we subsidize people who borrowed too much. Doesn't that equate to stealing form the system?

This is a clear election year ploy to buy votes..and I am sick for those of us who don't live beyond our means and are responsible paying for those who refuse to be.

Phillip Robinson: Another good question to ask is why should government bail out wall street for buying these ridiculous loans?

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Anonymous: Our economy needs the housing market to be stable. But who is really to blame? Some of these folks should not get pass a loan officer, but the next level approved them and so on and so on. My in-laws have a 11-percent loan with a early pay penalty in the first two years to hurt them from refinancing.

Phillip Robinson: In our work at Civil Justice the common bait and switch tactic use to get folks into a bad loan was that there credit was bad when in fact their credit was not bad at all. It was just a ruse for the mortgage originator to make a profit. Have your in-laws have their documents reviewed by a housing counselor or attorney to give them options as to what they can do.

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Bethesda, Md.: Why should I, as someone who bought a home in the past 18 months, be responsible for subsidizing those who bit off more than they could chew? I pay my mortgage on time, as do 85-90 percent of people who bought homes over the past several years. Just because 10 percent of people can't afford their homes, doesn't mean the rest of us (taxpayers) should subsidize their housing.

I know it is an election year, but pouring all this money into a "crisis" that is largely made up the media is a huge election year ploy to buy votes. In order to correct the market, foreclosures have to happen and people who can't afford what they have need to be foreclosed on. It will help in the long run.

This is not some national crisis, as media and politicians like to say for political reasons, it is 10 percent of new homeowners who were irresponsible and bit of more then they could chew...and they should pay the penalty. They shouldn't get a free ride on the back's of responsible home owners.

Phillip Robinson: Absolutly individuals should accept personal responsibility in some instances. But the predatory mortgage originators who have made millions off the backs of homeowners and then sold the unfair and deceptive loan to wall street--where we all are losing money--should be held accountable. Whatever the local, state, or national solution, the solutions should be fair and reasonable for all. Everyone pays when a foreclosure happens. A Chicago study two years ago found teh negative impact of a foreclosure to equal $150,000.

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Odenton, Md.: I can understand people being angry at irresponsible borrowers. But I bought my townhouse about a year ago with 100 percent financing. Due to having really good credit I was able to get two very good fixed rate loans. Since then, I have made extra payments each month on the higher interest loan and plan to pay it off entirely within five years. The 100 percent financing made it possible for my husband and I earlier but we went for something well within our means.

Why is all the anger directed at the people who took out the loan? I feel like the mortgage industry sets people up to fail. I couldn't count how many loan applications, mortgage insurance offers and other junk mail I receive. And they try hard to make it look official and compulsory.

We live in a spending society; are people really that surprised that other people went out and spent?

Phillip Robinson: well said...

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Rockville, Md.: I agree that taxpayers should not be the ones to pay for the mistakes of the mortgage lenders and the buyers. If homeowners can't afford to stay in the house now, we are just putting a bandaid on the problem by throwing money at it -- they will not be able to afford the house a year from now even with temporary help, and our tax money!

The best solution would be to get out of the house, maybe not through foreclosure, but change the laws so that homeowners can negotiate out of their mortgage, even if they have to give up all of their equity!

Phillip Robinson: Maryland's new laws actually will allow this effrt to work whereas previously this was not an option for most folks in trouble because the process was too fast for a short sale or even a normal sale to occur. I think this is the best remedy right now for most folks in the pipeline to foreclosure but it will require lenders and borrowers to face a reality check--something both sides have a hard time with.

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Laurel, Md.: I took out an ARM in 2004, but it's a prime ARM that if it was resetting today would be around 4 percent.

My opinion on these re-setting rates is along the line of:

No one should be paying 10 percent. If the borrowers can't afford their mortgage because the interest rate is high, then find a way to make it a reasonable APR.

OTOH, if they took out an ARM at 4 perent because they couldn't (and still can't) afford 6 percent, then they don't belong in their house.

Defined this way, which group defines most of Maryland's troubled borrowers?

Phillip Robinson: I would take another look at the reset. No loan resets lower that I know of...usually they only go up but it's in the fine print. I have been wrong before, so I will hope you are the exception to the rule.

The typical homeowners in foreclosure and at risk remain (sick, job loss, or family issues). What's new are two income families who were placed in unafforable loans from the origination (or charged illegal fees) and the professionals in the transaction duped the homeowner into thinking they could afford it.

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Bethesda: I share the frustration of homeowners (like me) who bought homes they could afford and feel it's unfair to bail out others who did not. But one answer to the question of why the government should help some of those who are in trouble is that it actually is in our interest too. You may be able to afford your house just fine, but if the house next door and another down the street go into foreclosure, you lose anyway. Your own house will lose value -- so good luck if you need to sell -- and the neighborhood may suffer due to vacant, untended houses. Just ask the residents in neighborhoods around Cleveland that were profiled in the Post a few months ago. High foreclosure rates are devastating entire areas, taking down "innocent" homeowners too.

Phillip Robinson: You are right...the negative impact of a single foreclosure is $150,000. This includes lower values to the neighboring homes, losses to families, losses to banks, lower taxe revenues, etc. Everyone loses when a house goes to foreclosure except for the originators who have been paid and sold the loan to wall street. Those folks are just fine.

Maryland's new laws however will create a way to track default rates by originator. Mortgage originators with high default rates than will lose the priviledge of their license in the State of Maryland.

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Bankruptcy: If people want to get really mad, they should look at how people spend out of their minds, declare bankruptcy, and keep all their stuff. Obviously, you can't get away with this if you own a house with equity, but that was not usually the case. I know-I used to do bankruptcy law and I saw it all the time.

Phillip Robinson: The new bankrupcy law changes that have been around for a couple of years have made it much harder for this in Maryland. Bankruptcy is an opportunity for a fresh start and is an option for some homeowners. The new laws in Maryland, however, provide an alternative to bankruptcy. So, hopefully we'll see even less for homeowners most in need and able to make a reasonably profitable payment to their lender.

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Silver Spring, Md.: Is there any help for responsible, mortgage-paying homeowners whose property values are plummeting due to foreclosures and the declining market in general? We bought within our means in the peak of the market, and if we need to move for a job transfer, we could lose our 20 percent downpayment--in other words, our life savings. I know we're better off than most, but it seems unfair that we're the ones who suffer as the artificially inflated housing market declines.

Phillip Robinson: The first step you can do and any homeowner in this situation is talk to a certified housing counselor to evaluate your situation. Go to www.mdhope.org for the list of free, qualieid counselors in Maryland.

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RE: Why should I, as someone who bought a home in the past 18 months, be responsible for subsidizing those who bit off more than they could chew?: I agree to this in theory, but it could be a case of be careful what you wish for. If there are homes in foreclosure in your neighborhood, your own property value may decrease. It may be more difficult for you to sell or refinance. Besides that, I wouldn't want to live in a neighborhood with lots of empty homes due to foreclosure. That's one thing I looked at when I was recently looking for a new home.

I am feeling some compassion for those who were talked into doing something they shouldn't have done. The homebuying process is difficult to understand. When someone who is supposed to be a professional, and is supposed to know more than you do about buying a home, tells a buyer they can afford X, they believe them. I just bought a home as a first time buyer, and my bank tried to convince me that I could afford a loan that was $200,000 more than what I knew I could handle. The entire process was extremely confusing to me, and the bank's loan officer was not very accessible and did not explain things to me properly. And this is a credit union I've had a relationship with since I was a kid.

Yes, people should have done their homework better like I did, but I do understand why many got in over their heads. Also, many people didn't know they'd be losing their jobs. I just feel bad for them.

Phillip Robinson: well said

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Baltimore: My 5/1 ARM also reset lower, when I esquired, it's on the total mortgage remaining and credit score that determines your prime rate.

Phillip Robinson: I would encourage you to have a free, qualified housing counselor review your loan documents as I have never seen an adjustable loan that actually goes down. Go to www.mdhope.org for a list of counselors near you.

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Maryland Suburbs: Have you read anything about what Fairfax County in Virginia is talking about doing? The county government is considering purchasing homes that are empty due to foreclosure and selling them at low prices to keep neighborhoods from having lots of empty houses. Do you think this is a good option, and are any counties in Maryland thinking about doing this?

Phillip Robinson: I think becasue of the budget issues going this is difficult in Maryland. However, Congress is considering allowing local governments to get certain financing to make this possible. Contact your Member(s) of Congress for more information.

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Phillip Robinson: Maryland has taken a lot of excellent steps to helping homeowners who can be helped. Not everyone will benefit however. The most important thing anyone can do is take steps. There are lots of free resources available including my organization, Civil Justice Inc. and housing counselors. If you are in trouble and potential trouble with your mortgage loan, go to ww.mdhope.org and get to someone who can assist you. We all pay for the negative consequences of foreclosure. So, we all have stake in preventing those which should be prevented.

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