Maryland Starts Mulling Mortgage Reforms

By KRISTEN WYATT

ANNAPOLIS, Md. -

Alarmed by a skyrocketing foreclosure rate, Maryland lawmakers started work Tuesday on a package of bills aimed at slowing the number of homeowners losing their houses.

The number of foreclosure actions in Maryland went from 3,500 in 2006 to 23,000 last year. In some neighborhoods, foreclosures are up more than 1,000 percent in the last couple years.

A state Senate committee heard testimony Tuesday on three bills aimed at reforming the mortgage lending industry. The measures have been backed by Gov. Martin O'Malley as a way to prevent what some call corruption in the home lending business.

"The problem is getting worse, and it may continue to do so," said Tom Perez, secretary of the Department of Labor, Licensing and Regulation. Perez told lawmakers that the industry needs tougher oversight to prevent future foreclosure waves.

The bills would, among other things, direct a new crime of mortgage fraud at unscrupulous lenders. The measures would make it harder to make certain risky loans and would extend the minimum amount of time for a foreclosure to be completed after a homeowner falls behind on mortgage payments.

The bills also call for a ban on most reconveyances, where homeowners facing foreclosure unwittingly sign away their homes to lenders promising to help them out of debt. The plan would ban prepayment penalties, where homeowners seeking to pay off a loan early are charged for doing so.

"Our current system is too much of an assembly line with no quality control," said Perez, who says the foreclosure trend was caused in part by weak government enforcement of consumer protections.

Lawmakers say they are almost certain to take up some mortgage reforms this session in response to the foreclosure trend, joining many other state legislatures. Senators spent hours hearing concerns from lenders and real estate agents about parts of the bills.

Several industry officials testified against a proposed ban on "foreclosure rescue transactions" such as reconveyances. They also raised questions about the mortgage fraud proposals.

For example, the bills could make notary publics subject to fraud prosecution. Industry workers called for revisions making clear notary publics would be protected from prosecution if they have little to do with the transactions.

Another major objection was to a revision that only one legal notice, not three, would have to be published before a foreclosure can be completed. Two newspaper publishers testified against the plan.

Lenders told lawmakers that the mortgage reforms need a lot more attention before they become law.

"We think the concepts are great, they just don't do what they want," said Steve Lovejoy, of the Mid-Atlantic Financial Services Association.

Tuesday's hearing was just the first crack at evaluating the mortgage reforms, and the bills will likely be changed before senators vote on them.

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