Eye on Annapolis

Governor and General Assembly grapple with foreclosure crisis

by Laura Schwartzman
Capital News Service

18 January 2008

A dramatic rise in foreclosures and related scams is expected in Maryland in the coming year, prompting the governor and the General Assembly to roll out several initiatives intended to help people keep their homes and avoid mortgage fraud.

Gov. Martin O'Malley this week proposed a set of emergency regulatory reforms and bills to target predatory lending and mortgage fraud, more efficiently inform homeowners about foreclosures and create stricter licensing regulations. In addition, there are at least five more foreclosure-related bills that have originated in the legislature this year.

Maryland had 6,969 foreclosures in October and November 2007 alone, said Department of Labor, Licensing and Regulation Secretary Thomas Perez, in a briefing this week before the House Economic Matters Committee. The foreclosure rate statewide increased by 639 percent between the third quarter of 2006 and the third quarter of 2007, he said.

Foreclosures not only hurt the individual homeowners, they also affect the state's tax revenue, further straining an already tight budget situation.
Officials are not optimistic about 2008, with Perez predicting more than 23,000 foreclosures this year. Others are concerned that scam artists will use the crisis to prey on vulnerable homeowners who are desperate to keep their houses.

Foreclosure spikes across the country are the fallout from a boom in subprime lending where borrowers were offered loans beyond their means, said Bruce Marks, chief executive officer of the Boston-based Neighborhood Assistance Corporation of America. The loans quickly became unaffordable and homeowners lost their houses.

"These mortgages were structured to fail," he said.

Several of O'Malley's emergency regulations are aimed at tightening licensing requirements for mortgage brokers. One would require more experience for mortgage lender licensees and provide more reports on their activities.

O'Malley also wants to require that mortgage originator licensees track rates of default and foreclosure. Servicers would be required to report fraud, theft, forgery and other financial crimes within five days of discovery or conviction.

"In Maryland, it's far more difficult to become a barber than a broker," Perez said.

The governor also has four legislative proposals which are expected to be introduced to the legislature this week.

Among them is a credit regulation bill requiring mortgage originators to more closely scan borrowers' ability to repay loans. One bill creates a criminal mortgage fraud statute, and another seeks to reduce the number of times a foreclosure advertisement must appear in a newspaper - a move designed to ease advertisement costs on homeowners.

"The bills are part of the governor's package of reforms to preserve homeownership of Marylanders in the wake of our foreclosure crisis," said Vicki Schultz, senior adviser for consumer protection initiatives in the Department of Labor, Licensing and Regulation.

Five foreclosure bills are pending in the legislature, including a measure to allow homeowners to stop the sale of their foreclosed property within three days of a sales contract.

Another measure, co-sponsored by Delegates Melvin Stukes, D-Baltimore City, and Barbara Robinson, D-Baltimore City, urges Congress to establish a federal agency to oversee mortgage matters and declare a temporary moratorium on foreclosures.

"Millions of Americans could face foreclosures and the loss of their homes in the coming months," the bill states, suggesting the national economy could suffer a collapse worse than the one that caused the Great Depression.

Capital News Service reporter Kelly Wilson contributed to this story.