Record 12.4% Are Late On Mortgage

High Unemployment Hurts Maryland Borrowers, Even Those With Prime-rate Loans

August 21, 2009|By Jamie Smith Hopkins | Jamie Smith Hopkins,jamie.smith.hopkins@baltsun.com

One in eight Maryland borrowers were behind on their mortgages this spring, a new report shows, a record caused by job losses and foreclosures feeding on each other in a vicious cycle.

That adds up to about 132,000 homeowners who were at least 30 days late, according to a survey released Thursday by the Mortgage Bankers Association. That's up nearly 60 percent from a year ago and includes people whose lenders were trying to foreclose as of June.

The country fell into recession after homeowners with risky "subprime" loans began defaulting in large numbers two years ago, sending financial institutions into a tailspin. Now, as layoffs mount, many prime borrowers are falling behind on their payments - here and nationwide.

"We went through that first wave of foreclosure, with the subprime loans and other types of exotic products," said Raymond A. Skinner, secretary of Maryland's Department of Housing and Community Development. "Now we're seeing the employment situation and lack of income really hitting hard."

About 90,000 more Marylanders were out of work and looking for jobs in June than was the case a year earlier, according to the Labor Department. Unemployment spiked from 4.3 percent to 7.3 percent.

Maryland's situation isn't nearly as dire as Florida's and Nevada's, states battered by the housing slump. More than 15 percent of borrowers in both states are "seriously delinquent" - at least 90 days behind on their mortgages. In Maryland, it's a little more than 7 percent.

But that's high enough to rank the state 13th in the country for serious delinquencies, despite high average incomes here and an unemployment rate that hasn't climbed as high as the nation's.

The Mortgage Bankers Association counted more than 67,000 prime borrowers - people with good credit when they got their loans - in Maryland who were behind on their payments in the spring. That's just over half of all delinquencies and is up from about 37,000 a year earlier.

The trade group estimates that it tracks 80 percent to 85 percent of mortgages nationwide.

A drastic shift in the delinquency problem is afoot across the country, the mortgage bankers said. The "driver" hasn't merely gone from subprime to prime, said Jay Brinkmann, chief economist for the association. It's gone from subprime adjustable-rate mortgages - particularly risky - to prime fixed-rate, seen as the safest products available.

"Subprime ARM foreclosure starts dropped in 43 states," Brinkmann said. "However, the foreclosure rate for prime fixed-rate loans increased in 41."

In Maryland, lenders surveyed by the trade group began foreclosure proceedings on more than 4,100 homeowners with fixed-rate prime loans during the spring - from April through June. That compares with about 2,900 in the winter and 1,200 in the spring of 2008.

All told, 12.4 percent of borrowers in the state - prime, subprime, FHA and VA - were behind on their mortgages in the spring. That's the highest on record for a survey that has Maryland data back to 1979.

Delinquencies are up from 11.3 percent in the winter and 7.8 percent in the spring of last year, the mortgage bankers said.

The state, which is urging homeowners to get in touch with a nonprofit foreclosure-prevention counselor at the first sign of trouble, said it is getting an average of 300 calls a week to its foreclosure-help hot line, 877-462-7555. The recession has hurt homeowners' ability to pay even if they haven't lost a full-time job.

"Many homeowners were in recent years approved for their loans on the basis of overtime pay or a second job," Skinner said. "In this economy, a lot of that has gone away."

He said the federal Making Home Affordable program, which aims to lower eligible borrowers' payments to 31 percent of their monthly gross income, has been slow getting off the ground but "has a lot of potential" to help people who are making less.

But for someone out of work, loan-modification programs don't do much good.

"Ultimately, we need people to have jobs again," said Joanna Smith-Ramani, co-chairwoman of the Baltimore Homeownership Preservation Coalition, a collection of organizations working to decrease foreclosures. "There's only so much you can do to Band-Aid it or patchwork it between now and then. If people don't have income, they can't meet a modification payment, either."

That usually leaves just one option: moving out.

Here, too, the economy has thrown up roadblocks. If you can't afford your home in a normal market, you can sell and walk away, possibly with thousands of dollars in your pocket. But because so many people bought or borrowed against their equity at the height of the real estate bubble, about 29 percent of Maryland borrowers owed more on their homes in June than those homes were worth, according to estimates from real estate information company First American CoreLogic.

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