Maryland's Commissioner of Financial Regulation Mark Kaufman met with large servicers in 2009 to voice concerns about their ability to handle a growing number of foreclosures.
In his testimony Tuesday before the House Oversight and Government Reform Committee's special hearing in Baltimore, Kaufman said he was assured that the mounting casework was manageable.
But by the fall of 2010, it became apparent these companies were overwhelmed and cutting corners, according to Kaufman. Many of the largest servicers had to freeze foreclosures and conduct reviews of thousands of affidavits signed without a review of the documentation. The result has been an investigation from the 50 state attorneys general and federal regulators, as well as a proposed settlement that reached the negotiation stage this week.
Between 2000 and 2007, the subprime share of all mortgages in Maryland increased to almost 12% from 1.5%. The government acted. In early 2007, Maryland Gov. Martin O'Malley formed the Homeownership Preservation Task Force, which identified legislative action and different strategies he could take, according to his testimony at Tuesday's hearing.
New laws tightened credit, banned foreclosure rescue scams and formed mediation programs. Renters were given more protection. State lawmakers even revamped the foreclosure process, giving borrowers more notice before the home is sold.
In 2007, Kaufman's office began working with 12 other state AGs to address the foreclosure crisis. Iowa AG Tom Miller spearheads the current investigation and settlement negotiations with the servicers.
"This group sought to work collaboratively with the mortgage servicing industry and other parties to identify solutions to the myriad of problems we were seeing in addressing the crisis," Kaufman said.
The group gathered data submitted by the servicers. They published five reports between 2008 and 2010, analyzing foreclosure issues and how the servicers were responding.
"Unfortunately, this data and the related dialogue fell short of its potential as the Office of the Comptroller of the Currency forbade national banks from providing loss mitigation data to the states," Kaufman said.