A record 11.1% of Md. home loans distressed

Mortgage Trouble

March 06, 2009|By Lorraine Mirabella | Lorraine Mirabella,lorraine.mirabella@baltsun.com

The number of Maryland borrowers who face foreclosure or have missed mortgage payments topped 100,000 for the first time at the end of last year - a record 11.1 percent of loans in the state, the Mortgage Bankers Association said yesterday.

Rising joblessness is adding to a worsening housing crisis that has sent foreclosures and delinquencies to record levels, economists said yesterday. Problems for borrowers with subprime loans are now spreading into more conventional loans. Nationally, 12 percent of borrowers were behind on their mortgage payments at the end of December.

"Employment is the issue," Jay Brinkmann, MBA's chief economist, said during a conference call. "It's not an issue with changes in payment structure or payment resets. As jobs go away, you first see this show up in" subprime, fixed-rate lending. Then it works its way up to the less-risky prime loans.

In Maryland, the share of borrowers who missed payments rose to a high of 8.5 percent during the fourth quarter, the bankers group reported in its delinquency survey, which it has been conducting for 30 years.

About 91,160 home loans, out of just over 1 million mortgages in the state, were delinquent by at least one month but were not in the process of foreclosure.

The number of loans in the foreclosure process spiked 115 percent in the state, compared with the fourth quarter of 2007, the survey showed. Those loans - more than 28,000 - represented more than 2.6 percent of loans in the state and set a record for percentage of loans in danger of foreclosure.

"We had a housing market bubble that blew up," said John McClain, a senior fellow at the Center for Regional Analysis at George Mason University. "Then the overall economy started down. You have people who knew they were in a potentially 'upside-down' situation [owing more than their home is worth]. Some have had salaries frozen or been furloughed or laid off."

One in five U.S. mortgage borrowers owes more than their house is worth as of Dec. 31, First American CoreLogic said in a report released this week. In the Baltimore region, 12 percent of borrowers were "under water" as of December, the report said.

Maryland's delinquency rate was higher than the nation's overall 7.9 percent, which was adjusted for seasonal variations. (The state numbers were not adjusted.)

Still, Maryland has been cushioned somewhat from problems in states such as California, Nevada, Arizona and Florida, which had the biggest run-up in housing prices and now have the highest delinquency numbers, the bankers group said.

Maryland ranked 17th in the U.S. in delinquencies and 11th in the number of foreclosures started. New foreclosures during the quarter rose in Maryland to about 1 percent of all the loans surveyed by the bankers.

The number of loans on which lenders have started foreclosure has remained largely steady during the past three quarters, MBA statistics showed.

Brinkmann said problems with subprime loans are diminishing because the industry has stopped approving those loans and many of the subprime adjustable-rate mortgages already have reset to higher rates.

"The recovery will depend on when the jobs come back," he said.

Experts and housing advocates said they felt hopeful about an Obama administration foreclosure-prevention plan unveiled Wednesday. The plan would expand mortgage relief to borrowers who have not missed payments and to others who have homes worth less than the current mortgage.

Also, the House approved a major change to bankruptcy law yesterday, giving judges new powers to modify home mortgages in an attempt to ease the foreclosure crisis.

The bankers survey represents up to 85 percent of the mortgage market. Officials cautioned that delinquency rates typically spike at the end of the year.

As more foreclosure properties flood an already depressed housing market, prices get pushed down further.

Chris Traczyk, a real estate agent with Long & Foster in Elkridge, said most of the listings he has been showing to buyers recently have been foreclosed properties.

With several of his clients, "that's all they're requesting to see because they're thinking they'll get a great deal," despite knowing the home must be bought in as-is condition, and the bank must approve the price.

But the competition from foreclosures makes it tough for sellers of other homes, who often have to lower their prices, Traczyk said.

The increase in delinquencies and foreclosure actions in the state came as no surprise to Joe Cox, a community organizer for housing advocate group Maryland ACORN.

"Mortgage servicers or lenders have been avoiding meaningful loan modification at every step of the way," Cox said yesterday.

Banks have said they are taking steps such as Citigroup's plan, announced Tuesday, to reduce loan payments for some borrowers to an average $500 a month for three months if they lost their job.

But ACORN contends banks are just offering short-term solutions, such as tacking a missed mortgage payment to the end of the loan, that do little to help borrowers.

Many borrowers come to ACORN fearing they will fall behind on payments but say their lender won't consider modifying the loan unless they become delinquent, Cox said. The group says it wants to see loan modifications such as lowering the interest rate or monthly payments by extending the term of the loan.

"The message people are getting is 'Don't try to work this out ahead of time. Wait until you have a problem,' " Cox said.

Sun reporter Jamie Smith Hopkins and the Los Angeles Times contributed to this article.

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