Financial Regulation

Three Maryland mortgage companies must refund about $246,000 in prepayment penalties charged to customers statewide in violation of a 2008 law, according to state financial regulators. Litton Loan Servicing and Saxon Mortgage Services have returned $71,000 collected from 160 Maryland consumers, and Bayview Loan Servicing refunded $104,000 to 40 Marylanders, according to the state Department of Labor, Licensing and Regulation. The violations were discovered during compliance examinations conducted by the Office of the Commissioner of Financial Regulation.

Federal banking regulators have ordered an Eastern Shore bank to take measures to establish adequate capital levels, which could include finding a buyer, merging with another institution or selling shares, among other options. The Bank of the Eastern Shore has 60 days to comply with the prompt correction action issued this week by the Federal Reserve Board, which found the institution undercapitalized at the end of April. The order said that the Cambridge-based bank reported a net loss of almost $3.2 million at the end of June from December 2010 and that its equity capital declined to $7.7 million from $10.9 million.

A controversial Timonium lender accused of fueling property flipping in Baltimore has been barred from issuing mortgages backed by the Federal Housing Administration and fined $220,000. The U.S. Department of Housing and Urban Development took the action after finding that American Skycorp Inc. had used "falsified documents" to issue FHA-insured loans, had failed to assure that borrowers were qualified for the mortgages and had not followed FHA guidelines. The five-year ban from the FHA program is a severe blow to a 3-year-old company that has built itself into one of the nation's top FHA lenders.

Consumer and housing advocates for the poor are raising red flags about a complex and controversial bill that would deregulate Maryland's mortgage industry by removing protections for borrowers from the law.Their concerns prompted Del. Gerald J. Curran, chairman of the House Commerce and Government Matters Committee, to postpone a vote on the bill Friday. He made that decision after meeting Thursday with a representative of St. Ambrose Housing Aid Center, a Baltimore advocacy group.Curran, a Baltimore Democrat, said he wanted his financial institutions subcommittee to reconsider House Bill 94, which the panel approved last week.

A House of Delegates panel considered yesterday legislation that would allow for-profit companies to provide credit counseling in the state, opening up an industry tarnished by AmeriDebt Inc., a Maryland nonprofit accused of bilking debt-strapped consumers of millions of dollars. Consumer advocates say the legislation could allow for-profit companies that have been accused of gouging consumers with deceptive sales practices to set up shop in the state. Many of the nonprofit entities that have been investigated by state and federal regulators and by the Internal Revenue Service are affiliated with for-profit companies.

When the Obama administration unveiled plans to spend $75 billion to help homeowners modify costly mortgages, many Americans struggling to pay their loans felt relief was on its way. But to financial regulators in Maryland, the president's announcement in February invited help of a different kind - solicitations to negotiate new loan terms for a fee. And that spelled trouble. Officials at the Maryland Department of Licensing and Regulation had reason to worry; they'd been working on a slew of cases in which homeowners had paid hefty fees to loan counselors and received nothing in return.

Maryland homeowners overcharged by mortgage servicing company Fairbanks Capital Corp. will receive refunds within three months under a settlement signed yesterday with state regulators. Under the consent agreement with Maryland's Office of Financial Regulation, Fairbanks no longer will charge fees that the state believes were excessive or unauthorized. The company, which manages about 500,000 mortgage payments nationally for homeowners with riskier credit histories, was accused of harassing scores of customers by adding hundreds of dollars in unjustified late charges and other costs to their accounts and threatening to foreclose on their homes.

General Assembly committees begin considering tomorrow the first of several bills aimed at arresting an epidemic of property flipping that has seen more than 2,000 Baltimore houses bought and quickly resold at markups of at least 100 percent in the past four years. The bills target sales in which inflated appraisals and falsified documents are used to obtain mortgages that exceed the value of the houses, defrauding lenders and buyers, who are often stuck with high-interest loans they can't afford to repay.

Two House of Delegates committees will hold a joint hearing Monday on a package of bills aimed at curbing property "flipping." The hearing by House Economic Matters Committee and Commerce and Government Matters Committee is scheduled for 3 p.m. in the Legislative Services building in Annapolis. The committees are to hear testimony on measures that would require the licensing of all real estate appraisers, would require city real estate transactions to be entered on the Web site of the State Department of Assessments and Taxation more quickly and would limit the fees and points charged by mortgage brokers and lenders.

Gov. Robert L. Ehrlich Jr. signed legislation yesterday that requires groups providing debt-management services to Marylanders to be licensed by the state and limits how much they can charge. With the new law, Maryland joins a growing number of states seeking to license or strengthen regulation of debt managers, some of which have extracted enormous "voluntary contributions" from financially hard-pressed clients and sometimes failed to pay debts as promised. Debt managers have multiplied as consumer debt has skyrocketed in recent years.