Maryland mortgage woes ease in second quarter

Relief could be fleeting, as odds of double-dip recession mount

August 26, 2010|By Jamie Smith Hopkins, The Baltimore Sun

Fewer Maryland homeowners were behind on their mortgages or on the brink of foreclosure this spring, a welcome improvement but one that faces strong headwinds from an uncertain economy.

Since the second quarter, when the number of troubled borrowers declined here and nationwide, a steady flow of dreary economic news has stoked fears of a double-dip recession. U.S. employers cut jobs in July, and Americans pulled back on home purchases in a big way — meaning that more homeowners could be holding on by their fingertips, facing a loss of income and less opportunity to find a buyer to avoid foreclosure.

The true end of the foreclosure crisis "is going to be a question of jobs," said Jay Brinkmann, chief economist of the Mortgage Bankers Association, which released the mortgage delinquency data Thursday.

"It takes a paycheck to make a mortgage payment," he said.

The total number of Maryland homes working their way through foreclosure proceedings — more than 40,000 — dropped for the first time in four years during the second quarter, according to the bankers association. Lenders slowed the pace of new cases compared with the first quarter.

All told, about 146,000 Maryland homeowners were behind on their payments in the second quarter. That's down slightly — by about 1,000 — from the first quarter. The trade group's count is drawn from a survey of lenders that covers about 90 percent of the market nationally, so it accounts for most, though not all, of borrowers in trouble.

Brinkmann attributed the improvements in part to successful loan modifications and struggling borrowers selling their homes. "We're making some headway," he said.

But he warned that other forces could put the brakes on that progress. The end of a federal homebuyer tax credit drastically reduced home sales between the spring and summer, making it harder for homeowners to escape foreclosure through short sales. And the number of borrowers who missed only one mortgage payment was on the rise in the second quarter.

"Like most things these days, it's a combination of good news and some not-so-good news," Brinkmann said. "There are areas of concern."

Adding to anxieties about the direction of the economy, U.S. employers cut 131,000 jobs in July as temporary jobs with the census effort ended, while job growth in Maryland slowed. Home sales plummeted nationally that month, and dropped nearly 20 percent year-over-year in the Baltimore metro area.

Maryland isn't the country's foreclosure epicenter — states such as California, Florida and Nevada have been hit much harder. But Maryland, despite a median household income that tops the nation, has a higher rate of borrowers facing the loss of their homes than all but 13 other states.

State regulators had braced for the foreclosure picture in Maryland to worsen in the second quarter. That's because they expected mortgage companies to rush to start foreclosure proceedings ahead of a new state law taking effect July 1, allowing homeowners to request mediation with their lender before an auction can occur. The law aims to encourage foreclosure alternatives such as loan modifications.

Lenders did start more cases in the first quarter, when it was clear that a mediation law was headed for passage in the state legislature. And the state Department of Labor, Licensing and Regulation, which gets a heads-up from lenders when a homeowner is soon to face foreclosure proceedings, says new cases dropped sharply in July when both the new law and third quarter began.

Anne Balcer Norton, an assistant commissioner of financial regulation at the state agency, said "a true picture of the state of the market, and if there is any type of stabilization and who's benefiting from mediation," probably won't be clear until later this fall.

All owner-occupiers whose lenders filed to start foreclosure proceedings on or after July 1 are eligible for the court-supervised mediation. Just 24 mediation meetings have been scheduled, the first in early September, according to the Maryland Office of Administrative Hearings. Thanks to the run-up in foreclosure starts earlier in the year and the drop afterward, few borrowers have yet to qualify.

In Baltimore City, where the spike in filings came later than in the state overall, 2,100 foreclosure proceedings were started in the second quarter — by far the highest figure for a three-month period since the Baltimore Neighborhood Indicators Alliance began tracking them in 2007. Fewer than 100 cases were started between July 1 and Aug. 10, the most recent data.

Southeast Community Development Corp., a Baltimore nonprofit that offers foreclosure-prevention counseling, saw its first mediation-eligible client this week.

And Mary Warlow, marketing director with Belair-Edison Neighborhoods Inc., a counseling provider in the Northeast Baltimore community, said staff there have seen just two homeowners eligible for mediation.

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