Lending-reform plans outlined

Proposals aimed at ending unscrupulous practices, official tells legislators

October 25, 2007|By Laura Smitherman | Laura Smitherman,Sun reporter

Maryland's secretary of labor, licensing and regulation outlined yesterday to state legislative committees in Annapolis proposals aimed at ending unscrupulous lending practices and giving troubled homeowners more time to get their finances in order before foreclosure actions are filed.

Rising loan defaults on subprime mortgages, those extended to borrowers with weak credit histories, have shaken housing and credit markets nationwide.

In Maryland, there were 7,000 foreclosures from July to September, compared with about 950 in the corresponding period last year, according to data analyzed by the Department of Housing and Community Development.

"The foreclosure rate spike we are seeing now is the fallout from the subprime lending boom, which was exacerbated by the paradigm shift in the market and skyrocketing housing values," Thomas E. Perez, secretary of labor, licensing and regulation, said in testimony. "These factors led to an era of relaxed lending standards, often resulting in homeowners ending up in loans that were quite risky."

Perez and other officials presented recommendations from a task force formed by Gov. Martin O'Malley to address the growing number of foreclosures in the state. The General Assembly is expected to consider the proposals in the regular session beginning in January.

"Clearly, there is momentum that we do some of these things," said Del. Brian J. Feldman, a Montgomery County Democrat. "After all, this is the largest economic transaction most people will have in their lifetime."

The task force recommended enacting a broader criminal statute for mortgage fraud and requiring that lenders and mortgage originators report fraud to the state.

They also suggested codifying that lenders wait 90 days before filing a foreclosure action after a borrower defaults, and lengthening the amount of time before a sale can take place. Another proposal would require that brokers be able to demonstrate that each mortgage, particularly a refinanced loan, provides a tangible net benefit to the borrower.

Nearly 70 percent of homeowners obtain their residential mortgages through a broker rather than directly from a bank or lender.

Charles DiPino, president of the Maryland Association of Mortgage Brokers and a task force member, said his group would like to see the standard applied to everyone who extends a loan.

"It's a standard of good faith that all businesses should follow," he said. "I don't think as mortgage brokers we should be carved out."

laura.smitherman@baltsun.com

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