Home loan reforms planned

O'Malley seeks changes to address foreclosure threat

General Assembly

January 13, 2008|By Laura Smitherman | Laura Smitherman,Sun reporter

Kue McIntyre of Northeast Baltimore fell behind on her mortgage payments, but she didn't know how dire the situation had become until a housing advocacy group called to ask if she needed help fighting her foreclosure.

She hadn't received a notice that a foreclosure had been filed. It isn't required under state law.

"I really feel they shouldn't set up a person to fail, and that's the way I feel right now, that they set me up to fail," said McIntyre, who is scrambling to find another lender or arrange for a quick sale, now that she has lost her job and her adjustable-rate mortgage has started to rise.

As the subprime mortgage debacle has left many homeowners in trouble, Maryland's foreclosure process and lending industry are expected to come under scrutiny by the General Assembly. Gov. Martin O'Malley plans to propose tomorrow a number of changes to slow down the foreclosure process and make it more transparent, to increase oversight of mortgage brokers and to establish criminal penalties for mortgage fraud.

FOR THE RECORD - An article in Sunday's editions incorrectly stated the number of subprime mortgages in Maryland. The number has grown to about 130,000 loans in the third quarter of last year from about 12,800 during the corresponding period in 2000.
THE SUN REGRETS THE ERROR

O'Malley's push to stem the rising tide of foreclosures comes as tens of thousands of subprime homeowners in Maryland are expected to go into foreclosure and possibly lose their homes over the next several years - and as previous attempts by his administration to help troubled homeowners have fallen short.

"The reality is we have to do more," said Thomas E. Perez, Maryland's secretary of labor, licensing and regulation. "We've only helped a small fraction of the people in need. We are planning to move fast on this for the simple reason that there are people in danger of foreclosure today, and time is of the essence."

The sheer size of the subprime industry has made wholesale solutions difficult. The number of subprime mortgages in Maryland grew from about 52,600 in 2000 to 502,350 in 2006, according to the Mortgage Bankers Association.

In Maryland, about one-fifth of homeowners with subprime mortgages were late on their payments or in the foreclosure process during the three months through October, according to the bankers association's latest data.

Additional delinquencies and foreclosures are expected as adjustable-rate mortgages, which became popular during the housing-market boom because they allow for lower initial monthly payments, reset to higher interest rates over the next year.

Complications

State and federal efforts to help troubled homeowners have been complicated by a number of factors. Some market-based solutions have stalled because fewer lenders are willing to extend credit to subprime borrowers, who typically have spotty financial records. At the same time, taxpayer-financed solutions might be unpalatable or impossible, given strapped government budgets.

Any effort to direct state dollars to programs for troubled homeowners in Maryland will run headlong into budget constraints. The General Assembly approved a budget-balancing package that included tax increases and spending cuts in a special session late last year, and lawmakers say that there's not a lot of appetite for new spending measures.

Maryland's efforts to help homeowners have met with little success. This summer, as the credit crunch intensified, O'Malley created the HOPE program to direct more than $100 million to assist hundreds of homeowners in refinancing exotic mortgages and to avoid foreclosure.

But only 14 homeowners have gotten help through the program, which was too restrictive for many troubled borrowers. The program was funded through the bond market. That meant borrowers had to meet certain restrictions, such having a credit score above a certain level, to ensure that the loans could be sold to investors.

The Maryland Department of Housing and Community Development is tweaking the program so that more people qualify.

The agency is also working on a loan program for borrowers who are already delinquent that would involve a partnership with lenders. And the agency is looking to create a crisis-intervention fund, which would involve short-term loans to help borrowers stay current on their mortgage payments until they can refinance.

"We're trying to take from our existing resources," said Bill Ariano, deputy director of community development at the housing department. "One person joked that we need to have a bake sale."

While the political furor over the subprime crisis could provide momentum for legal reforms in Annapolis, political observers say that there are bound to be skirmishes between consumer advocates, business leaders and lawmakers over the details.

Tailored proposals

And both Democratic and Republican lawmakers say they want to tailor their proposals to ensure they aren't bailing out borrowers who made poor financial decisions or speculative investors who took out risky mortgages in house-flipping schemes only to get caught in the plummeting real estate market.

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