Maryland regulators told a state Senate committee Wednesday about measures they are considering to curtail bad practices by mortgage lenders that are leading to a high number of foreclosures. They include insisting lenders verify the ability to repay the loans, cutting penalties for paying off a loan and beefing up licensing requirements for lenders.
Lawmakers, lenders and officials all agreed that they didn?t want new regulations to create a money crunch for people finding a hard time buying a house, as the subprime market has been important aid to homeownership and wealth creation, particularly for minorities.
“We do not want to destroy the subprime market,” said Steve Silverman, chief of the attorney general?s Consumer Protection Division.
Representative of banks, mortgage lenders, and brokers insisted that the problems were not as widespread as some officials insisted.
“Eight out of 10 subprime loans are not delinquent,” said Robert Enten, lobbyist for the Maryland Bankers Association. MBA cited figures that showed rate of foreclosures at a 20-year low in Maryland ? about one-half of 1 percent ? with most of the national problems, which has rocked Wall Street, caused in just seven states.
“Four [percent] to 5 percent of the cowboys are causing about 80 percent of the problems,” said Clay Opara, representing the Maryland Association of Mortgage Bankers.
Tom Perez, state secretary of labor, licensing and regulation, said that his agency “phone is ringing offthe hook.”
“We cannot wait for the federal government to act,” Perez said. “We have the capacity at the state level to do an immense amount.” The state has the authority to regulate about two-thirds of the mortgage lending business.
“We see few cases involving banks,” said Perez, who is leading a state committee looking at the problems.
He said some of the main problems include shoddy underwriting practices, allowing borrowers who don?t qualify to get loans, and lenders who did not verify the income claimed on loans.
“We are examining whether to prohibit or significantly curtail the use of prepayment penalties,” Perez said. These make it hard for buyers to get out of bad loan. He also said state officials were trying to determine if there were enough laws on the books to protect against fraud.
The state is also looking at slowing down the foreclosure process, and tightening licensing requirements for mortgage originators “so that we can more effectively root out bad apples,” Perez said.
