O'Malley to argue for mediation bill

Governor, Cummings to testify to committees about pre-foreclosure legislation

February 16, 2010|By Julie Bykowicz and Annie Linskey | Baltimore Sun reporters

Gov. Martin O'Malley will put the force of his office today behind a plan that would enable struggling homeowners to negotiate better mortgage terms before banks can take their houses.

The governor is scheduled to testify before Maryland House and Senate committees on legislationthat would create a mandatory mediation process for owners at risk of losing their homes and require lenders to prove they tried to modify a borrower's loan before foreclosing.

By becoming a visible advocate for the plan, O'Malley, who has recently stepped up his criticism of big banks that he calls "faceless giants," is indicating a willingness to expend political capital on behalf of the proposal and raising the stakes if it falters.

Rep. Elijah E. Cummings, the Baltimore Democrat who has advocated on the national level for foreclosure prevention efforts, will join the governor in the legislative hearings.

O'Malley has typically made personal appearances on behalf of just one or two pieces of legislation each year; last year, the Democrat and practicing Roman Catholic made a push to repeal the state's death penalty statute, an initiative that fell short.

Political analysts called O'Malley's foreclosure measure a solid political position to take, particularly in an election year that comes amid a prolonged national economic downturn.

"How can you be against legislation that prevents people from getting thrown out of their homes?" asked Donald F. Norris, chairman of the department of public policy at the University of Maryland, Baltimore County.

The legislation appears to be more "symbolic" than productive, said Matthew Crenson, retired Johns Hopkins University political science professor, but could serve to soothe struggling homeowners.

The governor's proposal enjoys the broad support of Democratic lawmakers. But the court system, which would face an onslaught of dispute-resolution conferences with mandatory mediation, opposes it.

Among the concerns are the potential cost to courts and the legislation's failure to outline specific dispute resolution efforts that should be required before filing any court action, according to written testimony the court system will submit to lawmakers today.

Court officials also point out that it is "inherently unfair" to require borrowers but not lenders to show up in person for mediation. Banking officials can simply teleconference in, which "rarely results in a satisfactory outcome," according to the written testimony.

Kelley E. O'Connor, director of government relations for Maryland courts, said judges have discussed the mediation plan with aides to the governor "and will continue to work with them to resolve our concerns."

In a recent interview, O'Malley said he wants to require mediation because mortgage companies have not been reaching out to homeowners, despite federal laws saying they should do so.

"Their basic push-back is that they haven't had the staffing levels to deal with the foreclosure wave and that they're working on it, and they'll get better," O'Malley said. "Well, it hasn't gotten any better."

Kathleen M. Murphy, president of the Maryland Bankers Association, said her group generally supports O'Malley's proposal but wants an amendment that would allow banks to pursue foreclosures during the sometimes lengthy loan modification process instead of waiting until it is over, as O'Malley has proposed. She said the sale of the home, not the initial court filing, is what government officials should be trying to stop.

"We all want to make sure that a loan does not go to foreclosure sale if it could have been modified," Murphy said, noting that banks have improved their record of working with borrowers in recent months. "We all want to preserve homeownership."

Over the past two years, the governor's office has pushed several foreclosure protection measures adopted by the General Assembly. New laws require better notification to borrowers who could lose their homes and a slowing of the foreclosure process. The federal government also passed laws requiring banks to allow homeowners to pursue alternatives to foreclosure.

But those programs aren't working as well as O'Malley had hoped, he said, noting that December saw the highest level of foreclosure filings yet in Maryland, putting the state above the national average.

According to RealtyTrac, an online database, one in every 147 U.S. households received a foreclosure notice in the final three months of last year, while in Maryland, the rate was one in 138. That made Maryland the state with the 10th-highest rate of people who could lose their homes.

Maryland's unemployment rate in December inched up slightly to 7.5 percent, fueling concerns that residents will continue to lose their ability to pay their mortgages.

The governor's proposal would give homeowners a new option if their lenders deny them a chance to modify their mortgages. They could contest the reasons for denial - for example, by claiming that the home is a primary residence if the lender insists it is not - and send the case to a mediator.

Some other states, including Nevada and Connecticut, have adopted similar mandatory mediation plans.

The governor introduced his proposal as emergency legislation, meaning it would take effect immediately if adopted by three-fifths of the lawmakers in each chamber.

Cummings, who lives in West Baltimore, said his staff frequently tries to persuade banks and mortgage companies to make deals.

"I'm trying to make sure that lenders are doing everything they can to remedy [homeowners'] problems short of foreclosing on them," Cummings said. "I'll go to any place. I'll go to any legislative body."

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