California and Ohio have struck similar agreements with loan servicers.
The companies are essentially debt collection firms that bill and collect mortgage payments, and many didn't have the staffing or skills to handle a large increase in borrowers falling behind and calling to ask for help. In many cases, the number of delinquent borrowers continues to outstrip the ability of loan servicers to grapple with the problem.
"Time and time again, homeowners are coming to us and saying, 'I sent in a hardship package and they are not responding,' " said Phillip Robinson, executive director of Baltimore-based Civil Justice Inc., which counsels homeowners facing foreclosure.
Hardship packages include paperwork detailing a borrower's financial status that lenders require before renegotiating a loan.
Clients of the St. Ambrose Housing Aid Center, a Baltimore nonprofit group, have typically waited four or five months before learning whether they qualify for a so-called loss mitigation, which can include a loan modification, repayment plan or a short sale, said Anne Balcer Norton, director of the nonprofit's foreclosure prevention division.
And while homeowners waited for a decision, servicers often continued foreclosure proceedings and piled on fees and penalties.
Under the Maryland agreement, the servicer is required to acknowledge receipt of a loss mitigation application within five days and to make a decision within two months. During that time, servicers agree to halt foreclosure actions and the accrual of fees and penalties.
Tim O'Malley, senior vice president of sales and marketing at AmeriNational Community Services Inc., one of the participating loan servicers, said the new requirements would "go a long way" to helping his company's customers avoid foreclosure.
AmeriNational, a subsidiary of St. Paul, Minn.-based American Bank, services about 15,000 mortgages in Maryland, about 8 percent of which are delinquent by at least two months, said O'Malley, who is not a relative of the governor.
He predicted that other servicers would follow suit, in Maryland and elsewhere. "From a national perspective, Maryland is the leader in this type of event," Tim O'Malley said.
Robinson said Maryland is able to put more pressure on servicers because it is one of only 11 states that directly license the companies. But though AmeriNational is licensed by the state Department of Labor, Licensing and Regulation, Tim O'Malley said his company was acting out of a desire to do the "right thing," not regulatory pressure. "We would have signed this, regardless," he said.
