Foreclosures have hit Maryland harder than many states. One in 10 borrowers in the state is at least 60 days past-due on payments, according to the most recent data. That rate of past-due borrowers is the same in the state's mortgage program.
The mortgage program — which is self-supporting and does not tap state funds — must balance the desire to help homeowners with its responsibility to its investors, who want to be repaid, said Stephen D. Silver, chief financial officer at the state Department of Housing and Community Development, which runs the program.
The mortgages are funded by selling tax-exempt bonds. Silver said the housing department believes the bond agreements prevent it from participating in the federal Home Affordable Modification Program, or HAMP, launched in early 2009.
But Skinner, head of the state housing department, acknowledged that "the world has changed over the last couple of years" and that "we really needed a specific program to put in place."
Getting a borrower into those lower payments is no simple matter. The loan's mortgage insurer, which would be on the hook to reimburse the state program for some of the loss from the modification, has to agree. Besides FHA, the Maryland Mortgage Program deals with nine insurers. Only one has given the state blanket authority to approve modifications under the new program. The others consider each request individually.
Though the state has approved seven of the new loan modifications for its borrowers, four have yet to be authorized by the insurers.
"It does take time to get through the process," Silver said.
Loan modifications that keep the payment steady or increase it are those most likely to default again, according to the U.S. Treasury Department. But Silver, CFO at the state housing department, said those sorts of modifications worked well for many of the Maryland Mortgage Program borrowers who fell behind early in the foreclosure crisis, because their cash-flow problems were short-term and they just needed help catching up.
It was only later, as the recession worsened, that more borrowers' income fell permanently and they needed lower monthly payments, he said.
Silver said he began talking in the spring to the private mortgage insurers participating in the state program to see if they would be willing to take a hit upfront on loan modifications to avoid a more expensive foreclosure. About 200 homes under the Maryland Mortgage Program were foreclosed on over the summer, the most recent figure available.
Once they got the go-ahead, housing officials rolled the program out — quietly. They haven't put details on the Maryland Mortgage Program website, but Silver said he did alert housing counselors that its non-FHA borrowers who could not afford their monthly payments would now have an option for staying in their homes.
William Henderson, 57, a construction equipment hauler, said he was told that nothing could be done for him when he called the state's loan servicer in late 2009. His hours had been cut, and he said he could no longer afford the full payment on the Queen Anne's County home he bought for $345,000 in 2008.
"When I did fall behind, they said, 'We don't modify loans,'" he said.
Foreclosure proceedings were started in August. That's when the state began offering its new lower-payment modifications — but only for borrowers whose loans have private mortgage insurance. Henderson has one of a relative few mortgages in the state program insured by the federal Rural Housing Service.
Henderson fought for a modification, hiring a forensic loan auditing firm to help him make his case in mediation. State housing department officials said they cannot legally discuss the specifics of Henderson's case. But Silver said he worked out an agreement with Rural Housing Service to consider the same type of loan modifications the state is now negotiating with private mortgage insurers.
Under a tentative agreement struck in early October, Henderson's payment would be dropped from $2,500 a month to $1,850. That would be accomplished by extending the loan, which had 28 years remaining, to 40 years and turning $100,000 of the amount owed into a "silent" second mortgage with no monthly payment. He would have to pay back the second loan if he ever refinanced or sold the home.
But those terms aren't in force yet. When he mailed in his first payment as directed, the servicer returned it. After The Baltimore Sun inquired about the case, state housing officials sent Henderson a letter in November to explain that they were waiting on final approval from the insurer.
Henderson said no one has updated him since. He's worried the agreement will fall apart. And he said he can't understand why the state of Maryland, so vocal on foreclosure prevention, wasn't offering these sorts of loan modifications much earlier.
"To me, it seems strange that they wouldn't work their own loans out before they did anything else," Henderson said.
The state-run Maryland Mortgage Program didn't have an initiative to lower monthly payments to an amount its struggling borrowers could afford until August. Before that, the state offered only loan modifications with a higher payment to catch up with the past-due amount, or modifications that added years to the mortgage terms.
Three loan modifications have been approved under the new program.