Maryland mortgage delinquencies post first drop since 2006

Bankers group warns against expecting big improvement soon

November 18, 2010|By Jamie Smith Hopkins, The Baltimore Sun

The number of Maryland homeowners behind on their mortgage payments dropped during the summer in the first year-over-year improvement since 2006, before the foreclosure crisis hit.

That would be a heartening change if the trend continues. But the Mortgage Bankers Association, which released the statistics Thursday, warned that significant declines are unlikely soon, because unemployment rates locally and nationally are still stubbornly high.

"We are getting some private-sector job growth, but it's still fairly anemic," said Michael Fratantoni, vice president of research and economics for the Washington-based trade group.

The foreclosure mess, set off by loose lending standards that helped fuel the housing bubble, began in 2007 and worsened as the country fell into a deep recession. The mortgage bankers' survey, which covers almost 90 percent of the market, in early 2007 counted fewer than 50,000 homes in Maryland whose owners were behind on payments and more than 150,000 by the end of last year.

That number is finally starting to drop. Three percent fewer Maryland homeowners were at least one mortgage payment behind at the end of September than a year earlier, according to the bankers' survey. That's the first drop since spring 2006, when the housing market was beginning to founder.

The number of Marylanders who missed one or two payments — and are not yet delinquent enough to be facing foreclosure — fell about 5 percent compared with a year earlier. The number behind by three months or more, including those with auctions scheduled, was essentially flat.

There's bad news mixed with the good. The number of seriously delinquent borrowers would have risen if not for a drop in the volume of loans working their way through the foreclosure process — a situation at least partly the result of Marylanders losing their homes.

Another trend — substantially fewer new foreclosure cases getting under way during the summer — was driven by a law allowing Maryland homeowners to request foreclosure mediation. That rule, which also requires more documentation from mortgage firms, went into effect July 1.

After rushing to file cases earlier in the year to beat the deadline, mortgage servicers slowed their pace substantially during the summer. Fratantoni said that change probably is temporary.

"We've seen this happen in the past, where one quarter, because of a new foreclosure requirement, the foreclosure rate will drop and then we get a bounce back one or two quarters later," he said.

St. Ambrose Housing Aid Center, the Baltimore region's largest nonprofit foreclosure-prevention group, is seeing a small decline in the number of people seeking help. But staff members said it's too early to tell if the worst is over. They said they are not optimistic about a quick turnaround, with so many of their clients out of work.

"When we first started doing this a few years ago, we thought [the foreclosure crisis] would have significantly subsided by now," said Jeannine Dunn, managing attorney for the nonprofit's foreclosure-prevention department. "Now we're looking at it, thinking in the next three years it's still going to be just as bad."

Not included in the mortgage bankers' summer statistics is the effect of temporary foreclosure freezes by mortgage servicers after revelations of improperly prepared documentation. Firms hit the brakes at the end of September and early October.

These actions rippled through the housing market, preventing some buyers from completing deals on bank-owned properties.

"It's the biggest mess I've seen since I've been in the business," said Bob Steele, a real estate agent who owns Passport Realty in Baltimore and handles foreclosure resales for large banks.

He said nearly half his listings are frozen, and about one-third of the properties with contracts have had settlements delayed.

"We've had it happen at the settlement table," Steele said.

Bank-owned homes and "short sales," in which struggling borrowers ask their lenders to let them sell for less than the mortgage balance, are a sizable chunk of the market. Nearly 40 percent of Baltimore's home sales from January through October fell into that distressed category, according to an analysis of multiple-listing service data by the Greater Baltimore Board of Realtors. The figure was at least 20 percent in every suburban county around Baltimore.

The foreclosure freezes that set in this fall could prove the equivalent of a speed bump — or the start of more turmoil.

Large mortgage servicers, looking through their files, have said they have found no evidence that they foreclosed on anyone in error. Some are restarting cases. But homeowners' attorneys are filing class-action suits, and inquiries have been launched by state and federal regulators.

Thomas J. Miller, Iowa's attorney general, said in testimony this week before the Senate banking committee that "robo-signing" — in which servicer employees sign court documents without verifying the information as the law requires — cannot be shrugged off just because a borrower is behind.

"We do not say in a criminal prosecution that it is OK for the prosecutor to fabricate evidence so long as the defendant is in fact guilty," he said. "The outrage over robo-signing is about due process, protection of private property rights and the rule of law."

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