More than a year after Maryland officials set out to quell the foreclosure crisis with some of the most aggressive prevention programs in the nation, the number of homeowners on the brink is again on the rise.
"We're not doing a heck of a lot better now than we were before," Gov. Martin O'Malley said in a recent interview. "So we've got to try to do something different to try to get the numbers moving in a better direction."
The O'Malley administration is working on a new tactic: using mediators to ensure lenders are making a good-faith effort to renegotiate more affordable loan terms, and to ensure homeowners understand those terms. The governor, a Democrat, plans to introduce legislation requiring mediation in foreclosure cases when the General Assembly convenes in January.
A number of states, including Nevada and Connecticut, and cities such as Philadelphia have implemented mandatory mediation programs.
O'Malley launched an all-out campaign against foreclosures last year. He pushed a reform package though the legislature and implemented state-backed loan programs. A public-service campaign urged troubled homeowners to call nonprofit housing counselors.
But those efforts had mixed results.
Foreclosure starts in Maryland slowed after new state laws and programs were implemented, and then resumed climbing, nearly doubling in the past year to 13,955 in the second quarter that ended in June, according to the Mortgage Bankers Association.
The O'Malley administration, using figures from data provider RealtyTrac, points to other troublesome trends, including a sharp uptick in foreclosure sale notices issued in the third quarter that ended in September, and the doubling of the number, to 2,210, of foreclosed properties purchased by lenders in that quarter compared with the first quarter.
The Center for American Progress, a liberal Washington think tank, has called for the federal government to increase funding and take steps to encourage mediation programs on the state and local level. The group, in a recent report, found that many at-risk homeowners had not talked with their lenders or servicers.
State housing officials say the recent uptick in foreclosures reflects persistent joblessness. While the initial crisis was related to subprime loans or adjustable mortgages resetting to unaffordable rates, many of the latest defaults are related to rising unemployment and the loss of household income.
"The face of foreclosure is changing," said Rosa Cruz of the state Department of Housing and Community Development. "Our initiatives have really worked to stabilize the situation in Maryland, but we're dealing now with a new wave of factors."
The Maryland Bankers Association, which met recently with O'Malley and his legislative staff, has not taken a stance on the governor's mediation proposal, President Kathleen M. Murphy said. She said questions remain about who would pick up the cost, and who would provide the services.
Other questions remain about how the program would be crafted and under what circumstances mediation would be required.
The bankers association has worked on a program in Prince George's County, which has been hit hard by foreclosures. Under that program, Murphy said, homeowners would be able to seek mediation if they can show the lender committed fraud or didn't follow new notice requirements enacted by the state legislature.
The new state laws, enacted last year, slow down the foreclosure process, establish criminal penalties for those who commit mortgage fraud and require that lenders verify a borrower's ability to pay. Before foreclosure proceedings were halted last week, Baltimore developer Edwin F. Hale Sr. tried to use the new laws to delay the sale of the 1st Mariner Tower in Canton where his offices are located and where he lives in the penthouse. He argued the lender didn't follow new notification requirements.
The state also rolled out refinance programs, but those have largely fallen out of use as plummeting home values prevented homeowners from being able to obtain new loans. "The market turned far more quickly than we anticipated," said Bill Ariano, deputy director of community development at the housing department.
Ariano said a new federal program is aimed at providing lower- interest bonds to state housing agencies, so they will be able to extend home loans again. And Murphy noted that federal loan modification programs are forcing lenders to work with borrowers to get them into affordable loans and avoid foreclosure, and that many lenders have only recently ramped up the staff needed to handle the workload.
"The last thing the lender wants is to foreclose on these properties," Murphy said. "In order for modification to work, you need a borrower who has the desire and the financial ability to make it work."
But the governor and some lawmakers have complained that loan modifications aren't happening fast enough. Sen. Verna L. Jones, a Baltimore Democrat, said she has heard from constituents whose lenders aren't participating in modification programs. And even if they are able to negotiate new loan terms, she said, the payment still isn't affordable.
"It hasn't gotten any better," she said. "These private lending institutions need to be more responsible and responsive to the needs of the people."