Foreclosure rates climb

Marylanders better off than nation overall as variable mortgages reset

As homeowners struggled to make higher payments on adjustable mortgages, the rate of new foreclosures this spring soared to its highest level in the nearly three decades that records have been kept. Maryland, however, had a smaller rate of new foreclosures than many states.

The handful of large states feeling the brunt of the credit crisis helped to push new foreclosures in the second quarter to 0.65 percent, or 65 for every 10,000 loans, the Mortgage Bankers Association said yesterday. The rate of residential loans considered delinquent (at least three months past due) jumped to more than 5 percent of the nation's 44 million loans, up from 4.37 percent of loans in spring 2006.

Maryland, which has faced a less severe housing downturn than other states, had a lower rate of loans entering foreclosure -- 0.36 percent. Of the just over 1 million loans being serviced in the state, about 3,750 were sent foreclosure notices in the second quarter, the bankers association said. The MBA figures for states are not seasonally adjusted. On a nonadjusted basis, the U.S. had new foreclosures at a rate of 0.59 percent.

In Maryland, though the percentage of new foreclosures was small, it has grown rapidly. In the second quarter of 2006, Maryland's rate was 0.19 percent, having nearly doubled. That is still less than rates as recently as several years ago, when Maryland's rate often topped 0.50.

Delinquencies and foreclosures are rising primarily because of homeowners falling behind on payments as adjustable rates have reset, said Doug Duncan, the banking association's chief economist. Many borrowers took out adjustable loans with lower introductory rates as a way to afford homes that soared in value during the real estate boom.

The adjustable loans make up a big share of mortgages in states such as California, Florida, Nevada and Arizona, where investors were especially active and contributed to soaring real estate values that have since fallen, the MBA data showed.

"They are seeing declining house prices, which makes refinancing these ARMs difficult," Duncan said.

"The same forces at work nationally are at work in Maryland; they just haven't had as severe an impact," said Anirban Basu, chief executive of the Baltimore economic consulting firm Sage Policy Group Inc.

"Many people took on adjustable-rate mortgages, and many of those mortgages are still in the process of resetting, and there still are people finding they cannot afford those mortgages," Basu added. "Housing appreciation has slowed in Maryland ... and that is conducive to higher levels of foreclosure."

Phillip R. Robinson, executive director of Civil Justice Inc., a public interest law group in Maryland that helps victims of predatory real estate practices, said much of the data on foreclosure and delinquency rates appears to be conflicting.

But he said it is clear from the deluge of borrowers turning to his group for help that the number of homeowners in danger of losing their homes to foreclosure is increasing steadily.

"There's a dramatic increase and shift in the kind of homeowner calling us," Robinson said. Previously, his group saw mostly "a homeowner who's had a devastating life event and is not able to make payments."

But now, he continued, "We're seeing a huge increase of very-good-credit borrowers who got mortgage loans that were unsuitable for them in the first place. The professional they relied on steered them to the highest-cost loan in which the professional could make a profit. They've gotten themselves in over their head. These are prime borrowers in subprime loans."

Still, Maryland has fared better than many states and the nation as a whole.

"Housing prices in Maryland have by and large held up pretty well," Basu said. "There is no part of the state where housing prices have fallen substantially ... so as a result when people fall behind on their mortgages, they don't go into foreclosure. They can sell their home."

Delinquency rates in the United States rose from the second quarter of 2006 for both prime loans and subprime, which are loans made to borrowers with weak credit, according to the MBA report, a survey of about 120 mortgage bankers, commercial banks and thrifts.

Duncan, of the MBA, said turmoil that has emerged in the credit markets since the end of the second quarter has further limited borrowing options for homeowners wanting to refinance high-cost loans.

And that means, he said, more increases in delinquencies and foreclosures before those rates hit a peak.

The upward trend, Duncan predicted, probably will continue more than the one to three economic quarters previously forecast.
(By Lorraine Mirabella, Baltimore Sun reporter)