Financial Regulation

Maryland's Senate gave preliminary approval yesterday to legislation that would allow for-profit entities to provide debt management services in the state, a move that consumer advocates fear would open the door to further abuses of financially strapped people seeking help. A final vote in the Senate is expected today. "We're concerned," said Steve Sakamoto-Wengel, assistant attorney general in the Consumer Protection Division. "There is a history of abuse in allowing profit motives in the debt counseling industry."

An effort to allow for-profit companies to provide debt management services to Marylanders failed during the last hours of the General Assembly when the legislature passed a bill to increase consumer protections for those seeking help from credit counselors. Now, only nonprofits can provide credit counseling and debt management in Maryland. But state regulators are expected to study whether for-profits can do the same job, and the issue may come up again next year. Two years ago, scandals erupted in the credit counseling industry with some nonprofits accused of overcharging consumers and channeling money to for-profit affiliates.

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.

A Baltimore man who is a longtime veteran of the financial services industry has been appointed as the state's next commissioner of financial regulation, replacing the soon-to-retire Mary Louise Preis. The new commissioner, Charles W. Turnbaugh, 58, is a first vice president and counsel with MBNA America NA. "He has senior-level experience and knowledge of the [financial services] industry, its operations and the operation of financial institutions, as well as a strong working knowledge of the policy issues facing financial institutions," said James D. Fielder Jr., secretary of the Maryland Department of Labor, Licensing and Regulation, the agency within which the commissioner of financial regulation works.

Officials in the state agency that licenses mortgage brokers said yesterday that they will seek criminal fraud charges against William W. Dent, whose companies engaged in real-estate flipping schemes that allegedly misled banks and exploited housing programs meant to help the poor. The state Department of Labor, Licensing and Regulation will also schedule a hearing that could lead to the revocation of the license of Dent's mortgage brokerage, All Financial Services Inc., according to the officials.

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.

The state of Maryland's last line of defense against bank fraud is overmatched and understaffed to catch a scheme such as the one that hid hundreds of millions of dollars in losses at Allfirst Financial Inc. for more than half a decade, banking experts say. Mary Louise Preis, Maryland's commissioner of financial regulation, and others warned of an examiner shortage five years ago as the number of state-chartered banks - including Allfirst - began to...

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.

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.

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.