Lengthens the Foreclosure Process for Homeowners, Makes Mortgage Fraud a Crime
ANNAPOLIS (April 5, 2008) – Governor Martin O’Malley joined with Senate President Thomas V. Mike Miller Jr., House Speaker Michael E. Busch, Lieutenant Governor Anthony G. Brown, community advocates and other officials on Thursday to sign emergency legislation that would help thousands of Maryland homeowners who are at risk of losing their homes and to prevent future generations of homeowners from losing their homes due to foreclosure.
Foreclosure rates have risen dramatically across the nation, and Maryland has not escaped the trend. In the fourth quarter of 2007, Prince George’s, Montgomery, Washington and Worcester Counties saw the number of foreclosure events double from previous quarter. In other counties, such as Kent, Garrett and Somerset, the numbers nearly tripled. Statewide, Maryland saw 9,722 foreclosures, compared to 7,001 in the previous quarter, an increase of 2,721 foreclosure events statewide.
The so-called subprime mortgage financial crisis was fostered by years of low interest rates by the Federal Reserve—a network of private banks that serve as the nation's central banking system—which coupled with deregulation of the banking industry in 1999 (On November 12, 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933) and unscrupulous lenders resulted in billions of dollars of mortgage loans to subprime borrowers. A subprime borrower has a less than ideal credit history. However, the Wall Street Journal reported that in 2006, 61% of all borrowers receiving subprime loans had credit scores high enough to qualify for prime conventional loans.
The bills signed Thursday are part of a package of initiatives and reforms introduced by Governor O’Malley to address the drastic rise in foreclosures in Maryland. Other reforms include a bill that would improve the regulation of mortgage industry professionals and reform lending practices by banning pre-payment penalties for mortgage loans, requiring verification of a borrower’s ability to repay a loan, and strengthening the mortgage licensing requirements, including increasing the surety bond requirement for mortgage lender licensees and instituting a minimum net worth requirement.
“This package of reforms will go a long way toward protecting homeowners from the irresponsible and unscrupulous lending practices we’ve seen in recent years,” said Secretary of Labor of Licensing Thomas E. Perez. “We now have the tools to crack down on bad apples in the mortgage industry and to combat scams that prey on distressed homeowners. I applaud members of the General Assembly for their overwhelming support for these measures.”
The emergency bills signed on Thursday include:
-- The Real Property – Recordation of Instruments Securing Mortgage Loans and Foreclosure of Mortgages and Deeds of Trust on Residential Property bill. The legislation significantly lengthens the foreclosure process from 15 days to approximately 150 days making it fairer for homeowners and providing them with more time and notice before a foreclosure sale. It requires a lender to wait 90 days after default before filing the foreclosure action and to send a uniform Notice of Intent to Foreclose to the homeowner 45 days prior to filing an action. It also requires personal service to notify a homeowner of impending foreclosure action and requires that a sale may not occur for 45 days after service. A lender must produce proof of ownership when filing a foreclosure action. The bill codifies the right to cure, which will allow a homeowner to stop foreclosure by paying what is owed up until one business day before the sale.
-- The Real Property - Maryland Mortgage Fraud Protection Act is a comprehensive criminal mortgage fraud statute that makes mortgage fraud a crime for anyone involved in the mortgage transaction. The bill provides for significant fines and imprisonment for violators, and it also gives the court authority to order restitution and forfeiture and enhanced penalties for cases involving vulnerable adults. The bill also authorizes the Attorney General, a State’s Attorney, and the Commissioner of Financial Regulation to take action to enforce the statute. The bill allows victims of mortgage fraud to bring private action against violators.
-- The Protection of Homeowners in Foreclosure - Prohibition on Foreclosure Rescue Transactions – Enforcement is an emergency bill that bans foreclosure rescue transactions that scam homeowners out of their homes and the equity they’ve built. The bill as passed also provides additional consumer protections for people who are trying to sell their homes because they are in default.
“I want to thank President Miller and Speaker Busch for working with the Administration during this session, as we put forward a legislative package to protect homeownership in Maryland,” said Governor O’Malley. “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. These bills help ensure that we keep people in their homes.”
“These administration bills strike the appropriate balance between the responsibility of both lenders and borrowers to ensure that everyone works together to avoid foreclosure,” said Lt. Governor Anthony Brown. “When homeowners are forced into foreclosure it hurts everyone: borrowers, lenders and the larger community where the home is located.”
Governor O’Malley earlier this year also announced the “Bridge to HOPE” Loan Program, which will provide small gap loans at zero percent interest to homeowners facing difficulty, giving them time to get back on their feet or find a solution. The statewide program is administered by the Maryland Department of Housing and Community Development’s Community Development Administration (CDA). Families and individuals facing the possibility of foreclosure should call 1-877-462-7555 or visit www.MDHOPE.org for assistance.
“These bills will ensure more time for homeowners faced with foreclosure to take action to save their homes and will help protect them from unscrupulous mortgage brokers,” said Raymond A. Skinner, Secretary of the Department of Housing and Community Development. “At last, Maryland borrowers involved in the mortgage process may rely on a comprehensive set of laws and regulations to keep them from becoming victims of mortgage fraud.”
Governor Martin O’Malley also called on and met with mortgage loan servicers in emergency work-sessions to work toward a public agreement to set a standard for consistent, timely and sustainable loss mitigation services for Maryland homeowners. The work-sessions were called to help find real solutions to the foreclosure crisis and protect middle class families from losing their homes. Talks with servicers are ongoing.
“More than any other federal or state efforts around the country, Governor O'Malley’s legislative package is the result of meaningful consensus among each of the responsible interest groups and will have an immediate effect of preserving homeownership in the near- and far-term.,” said Phillip Robinson, Executive Director & Attorney for Civil Justice, Inc. “I want to give kudos to the Governor and his leadership team for a job well done!”