Tackling the mortgage crisis

October 26, 2007

A state task force reviewing the impact of the subprime mortgage crisis in Maryland has come up with reasonable proposals that would tighten lending practices and help deter the loss of homes to foreclosure here. But relief won't be swift.

Their recommendations require action by the General Assembly, which won't take up the proposals until it next meets in regular session in January. Until then, state officials must aggressively reach out to homeowners at risk of losing their houses to see if they qualify for a special refinancing program that to date has helped just 15 people and refer others to loan counseling agencies.

Most other homeowners with perilous loans will have to take the initiative on their own, and many don't, according to industry leaders. But subprime lenders have to do their part as well, and many haven't stepped up, despite pledges to the contrary.

Moody's Investors Service surveyed 16 companies that serve 80 percent of the subprime market, and it found that they had modified only 1 percent of mortgages whose interest rates reset in January, April and July of this year. That's pitiful. Lenders should be actively pursuing borrowers who may face trouble. It's in their interest: A foreclosure reportedly costs a lender $50,000 in lost income.

Meanwhile, the wave of foreclosures swamping Maryland homeowners continues to hit like a tsunami. The number of houses set for auction last month tripled over the same time last year. Even worse, lenders can't unload the houses at auction: Statistics show they are left with 10 times as many houses now because the properties don't sell.

All the more reason why Maryland lawmakers must give the subprime package top priority when they meet in January. A first key recommendation would require lenders to wait 90 days after a homeowner defaults on a mortgage before filing a foreclosure action, and a second proposal would preclude the sale of a house within 15 days of that notice's filing, as the law now allows.

A third proposal tries to attack the problem at the front end: Mortgage brokers in Maryland would have a responsibility to make sure the homeowner can realistically pay the loan or risk losing their license. That's critical because 70 percent of mortgages in Maryland are arranged through brokers, not banks or other lenders.

Foreclosures related to subprime mortgages have an impact on more than lenders and homeowners. They result in lost revenue for governments and diminished property values for communities. It's in Maryland's interest to try to soften the blow.

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