Politics Business Schools Justice Health Et Cetera


O'Malley Signs Emergency Bills to Address Spike in Mortgage Foreclosures

By Tamra Tomlinson
Maryland Newsline
Tuesday, April 8, 2008
Interact:

Are foreclosure properties good deals for home buyers? Take this Maryland Newsline quiz to find out.

Related Web Link:

Special Report Main Page

A package of emergency bills and regulatory reforms addressing the dramatic increase in mortgage foreclosures has been signed into law by Gov. Martin O’Malley, becoming effective immediately.

The measures, passed in the final days of the 2008 General Assembly, are meant to aid prospective buyers and homeowners already facing foreclosure.

They will slow down the speed of the foreclosure process, tighten requirements for licensing of mortgage brokers and establish requirements for consumer education about the mortgage lending process.

“The financial security of our families as well as the strength and health of our communities depends on our ability to help preserve and sustain homeownership in our State,” wrote O’Malley in a prepared statement. “These bills help ensure that we keep people in their homes.”

Maryland’s foreclosure activity increased by 455 percent between 2006 and 2007 - from 4,522 filings statewide to 25,109. Foreclosure activity includes notices of default, auctions and bank purchases of foreclosed homes.

Three measures were signed by the governor on Thursday; the fourth was signed today.
 
One bill - the Protection for Homeowners in Foreclosure Act - prohibits mortgage consultants from arranging “forclosure rescue” agreements,  in which the owner transfers the home’s title to another person or agency and continues to live in the home as a renter. Homeowners sometimes enter these agreements to repair their credit and stay in their homes or to stall foreclosure proceedings after getting behind on mortgage payments.

The Real Property - Maryland Mortgage Fraud Protection Act creates penalties for mortgage fraud for anyone involved in the mortgage process and allows victims of mortgage fraud to sue brokers or lenders who engage in mortgage fraud.

Thomas E. Perez, secretary of the Maryland Department of Labor, Licensing and Regulation, said the package of reforms would help protect the state’s homeowners from “the irresponsible and unscrupulous lending practices we’ve seen in recent years.”

Another measure would establish a waiting period of at least 90 days after a borrower has defaulted on a mortgage loan before a lender can begin the foreclosure process. Previously, foreclosure could begin 45 days after notice was sent to the homeowner.

Credit regulation and mortgage lending reforms ban some fees for early pay-offs of mortgage loans. They also prohibit anyone with a felony conviction for fraud, theft or forgery in the last 10 years from being licensed as a mortgage broker or lender.

Thomas Shaner, executive director of the Maryland Association of Mortgage Brokers, welcomed efforts to establish higher standards for licensing brokers.

"We support anything that’s going to get rid of the unethical and unprofessional out there," he said. “To have those bad apples out there has been very harmful."

LegislationSenate Vote House Vote
Protection for Homeowners in Foreclosure Act46-0 132-7
Mortgage Fraud Protection Act45-0 119-17
Sale of Property - Foreclosure Process47-0 126-9
Credit Regulation - Mortgage Lending46-0 129-7

Although all four bills passed without opposition in the Senate, they met some resistance in the House. (See table at right.)

State Del. Warren E. Miller, a District 9A Republican, who opposed three of the four bills, said he was troubled by the provision in the Mortgage Fraud Protection Act that allows for mortgage holders to litigate against lenders or brokers. “My concern is that people who got legitimate loans can now sue,” Miller said. He said he fears that opening lenders to litigation for contracts that borrowers willingly entered will create “a feeding frenzy among trial lawyers.”

The provision “is going to take your lender and put them under the legal microscope. …[Lenders] are going to have to defend a large number of what I think will be frivolous lawsuits,” Miller said.

Also, restrictions on the types of loans that can be offered by Maryland banks can put the state’s banks on an “unequal footing” when competing for customers with out-of-state and national banks, Miller said.

Del. Rick Impallaria, a District 7 Republican, also opposed three of the bills. He objected to the credit regulation and mortgage lending bill's requirement for lenders to recommend mortgage counseling for anyone signing an adjustable-rate mortgage. "It's like using a shotgun to kill a gnat," he said.

“If I have an attorney … what the hell do I need mortgage counseling for?” he asked.

Impallaria also objected to prohibitions on “low-doc” and “no-doc” mortgage loans, which are loans for which a borrower has to provide little or no documentation of income or assets. He said small business owners’ incomes can fluctuate a lot from month to month, so they don’t have the usual means for a lender to verify their income. As a small business owner himself, Impallaria said, “I never got a loan in my life that wasn’t no-doc.”

While requiring stricter standards for lenders, the reforms also emphasize the importance of borrowers being knowlegable and realistic about their obligations.

Lt. Gov. Anthony Brown said that the reforms strike a balance between lenders' and borrowers' responsibility to prevent a problem that affects more than individual families.

“When homeowners are forced into foreclosure it hurts everyone: borrowers, lenders and the larger community where the home is located,” Brown said in a prepared statement.

Copyright © 2008 University of Maryland Philip Merrill College of Journalism

Top of Page | Home Page

Politics Business Schools Justice Health Et Cetera