Maryland Gov. Martin O’Malley’s proposal to help cash-strapped homeowners avoid foreclosure could drive mortgage lenders out of the state, according to several loan analysts.
“It would be a disincentive to do loans in the state of Maryland,” said Dan Caplan, mortgage loan consultant for Independence Mortgage Funding Inc. in Bethesda. “It sounds horrific.”
O’Malley’s bill would require lenders to prove they tried to modify a loan before issuing a foreclosure notice. It also would require lenders to provide homeowners with all the information and paperwork they would need to contest lenders’ decisions and pay a $100 fee for every foreclosure notice issued.
That paperwork would be sent to Maryland courts, where a judge would determine whether lenders fairly considered loan modification. If a judge ruled against a lender, the company would be required to work out the terms of the loan — in person — with the homeowner.
Jeff Hawk, vice president of Maryland Mutual Mortgage LLC, called the bill “reverse discrimination.”
“You are just keeping borrowers in homes they can’t afford,” he said. “You gotta let nature take its course.”
Hawk said the bill rewards delinquent borrowers with lower interest rates while ignoring homeowners managing to make their payments on time.
A similar measure regulating predatory lending was introduced to the Montgomery County Council in 2005. More than 40 lenders indicated they would pull out of the county if the bill took effect before a circuit court killed it, ruling it violated the state constitution.
But O’Malley’s bill would target only predatory lenders, O’Malley spokesman Shaun Adamec said.
“It’s the companies … that are forcing the governor’s hands in introducing this legislation,” Adamec said.
National loan modification programs helped 680,000 homeowners avoid foreclosure in the last four months of 2009, according to a report by the Office of Thrift Supervision. But more than half of those homeowners re-defaulted on their loans within six months, the report shows.
Pressuring lenders to re-negotiate loans that homeowners can no longer afford could put a strain on the sanctity of contracts in the state, said Tom Shaner, director of the Maryland Association of Mortgage Professionals.
“Maryland is getting a horrible anti-business image,” he said. “If all contracts in this state are null and void when it’s politically advantageous … people are not going to do business in this state.”
