4% of Md. borrowers facing foreclosure

May 19, 2010|By Jamie Smith Hopkins, The Baltimore Sun

Maryland borrowers in imminent danger of losing their homes hit 4 percent in March for the first time on record as lenders stepped up the pace of new foreclosure proceedings.

Lenders filed to start foreclosure on about 13,000 borrowers from January through March, compared with 10,500 the previous three months, according to a Mortgage Bankers Association survey released Wednesday.

That's one of the biggest increases in the nation, probably driven by an earlier rise in seriously delinquent loans and lenders hustling to start foreclosure proceedings before the state's new mediation requirement takes effect in July.

The increase comes as the long-running foreclosure crisis seems to be nearing a fork in the road. Will many of the potential foreclosures, held at bay for months by the loan-modification efforts, simply end up on the market as bank-owned homes in another wave starting later in the year? Or will foreclosures ease as the job market improves and more borrowers get their monthly payments lowered?

Some analysts are optimistic.

"We still see a case for gradual improvement," said Jay Brinkmann, chief economist at the Mortgage Bankers Association, which covers about 80 percent of the industry in its survey. "The economy is continuing to grow."

Others are less optimistic.

"We have very little confidence that any modification will work, ultimately," said Wayne Yamano, a vice president at John Burns Real Estate Consulting, a California-based firm that does housing market analysis for builders. "What the modification process has done is delay the release of that distressed property onto the market."

The new cases started by lenders bring to about 43,000 the total number of Maryland homeowners with pending foreclosure suits against them, or 4 percent of all borrowers. Never since the survey began in 1979 have so many loans been caught up in the foreclosure process. Three years ago, it was half a percent — about 6,000 homeowners.

There is one potentially hopeful sign in the mortgage bankers' survey: The pipeline of Marylanders in less serious trouble decreased at the end of March. About 104,000 homeowners were behind on their mortgages but not yet in the foreclosure process, down 11,000 from the end of December.

What is not yet clear is whether that's an early signal of a turnaround or just a temporary improvement of the sort that often comes in the beginning of the year, as borrowers recover from end-of-the-year budget shocks such as heating bills and holiday expenses. Maryland delinquencies have almost always dipped in the first quarter — with last year one of the rare exceptions.

All told, almost 14 percent of Maryland borrowers are behind, including those in the foreclosure process and those just a month late on payments.

Anne Balcer Norton, director of foreclosure prevention at St. Ambrose Housing Aid Center, a nonprofit in Baltimore that works with homeowners, said she isn't noticing an improvement.

"We continue to see a consistent volume and demand for services," she said.

Norton expected the state's increase in new foreclosure cases because that's what happened two years ago when the General Assembly passed a law to lengthen the timeline before homes could hit the auction block. The law went into effect in April 2008. "The end of March, we saw a rush of filing," she said.

Maryland's newest effort to reduce foreclosures requires that lenders show up for court-supervised mediation with borrowers if the homeowners request it. While cases starting after June 30 will be affected, it was clear during the first quarter that the measure was likely to pass. Gov. Martin O'Malley is scheduled to sign the legislation into law Thursday morning.

But Massoud Ahmadi, director of policy, planning and research at the Maryland Department of Housing and Community Development, says a bigger factor in the rise in new cases is the significant increase in borrowers who were at least 90 days behind on their loans during the fourth quarter of last year. Lenders can start foreclosure proceedings on Maryland borrowers once they've been in default for 90 days.

Fewer borrowers were in that category during the first quarter. "Hopefully, this indicates that … we will see a stabilization of foreclosure starts," Ahmadi said.

The foreclosure crisis started nationwide as subprime loans, higher-interest loans aimed at higher-risk borrowers, went bad in alarming numbers. Housing counselors said many of the borrowers signed up for complex adjustable-rate loans they didn't understand and couldn't afford, which were marketed heavily at the frenzied peak of the housing bubble.

That started a chain reaction. Bad bets on mortgages toppled financial giants and threw the country into a severe recession. Job losses added many more people to the foreclosure rolls — just over half of the Maryland borrowers who were behind on their mortgages in March had prime loans, not subprime.

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