State, region feeling foreclosure effects

Wednesday, Dec. 12, 2007

The report by the Homeownership Preservation Task Force comes as Maryland’s foreclosure rate shot up 370 percent from June 2006 to June 2007, moving the state from 40th in the nation to 15th for foreclosures.

‘‘The foreclosure spike is a national phenomenon, and Maryland has not escaped the challenges,” said Department of Labor, Licensing and Regulation Secretary Tom Perez, who co-chaired the task force.

RealtyTrac, a national foreclosure tracking company, estimates that there was one foreclosure for every 806 households in Maryland during the past year. While the state’s rate grew 370 percent, the national rate was up 87 percent, RealtyTrac reported.

‘‘Today, we’re 15th,” Perez said. ‘‘Our goal is to be 50th. We’re moving in the wrong direction.”

The area is beginning to feel the effects of foreclosures on the housing market.

‘‘Foreclosures are rapidly changing our local real estate market here in Charles County,” said Jonathan Benya, a Century 21 Waldorf Realtor. ‘‘The more foreclosures we see, the more home values are impacted, and the red-hot foreclosure market is showing no signs of slowing down.” According to Benya, 19 foreclosure properties were sold through Realtors in Charles County in 2006. There have been 61 to date in 2007, he said.

‘‘The reason is twofold. First, because there is so little equity involved in foreclosures due to purchases made at the height of the market with sub-prime loans, and banks are forced to sell their properties through brokerages to minimize their financial losses rather than through foreclosure auctions, which previously had been the easiest method to unload bank-owned homes,” he said.

Currently there are 51 bank-owned properties available for sale in Charles County, up 10 percent from last month, Benya said, and that number is expected to climb as more people are hit with mortgage rate adjustments.

Waldorf alone has 29 preforeclosure properties for sale now according to Realty-Trac, 169 properties available for auction and 34 bank-owned properties, Benya reported.

‘‘This is not a concern that is simply going to correct itself with the next six months, or even the next year. Home prices are expected to continue to fall, and county sales statistics are evidence of the need for the market to deflate further over the next year,” he said.

In June, Gov. Martin O’Malley (D) established the task force and charged it with finding ways to curb the growing problem. The task force’s report to the governor late last month suggested stronger underwriting and lending standards, as well as more oversight for the mortgage industry.

It also called for better education to help homeowners avoid predatory lenders, and more access to better financial products for people purchasing or refinancing homes.

Perez said the immediate issue is homeowners on the verge of or facing foreclosure. One task force suggestion is the creation of a fund to provide case-by-case interventions to prevent foreclosure, allowing more stable monthly payments or time for a property sale.

Some of the recommendations to the governor will require changes in Maryland law ‘‘to rein in bad players and practices,” according to the report. The report also recommends a regulatory change to increase the time between default and foreclosure from 15 to 90 days.

‘‘What you’re not seeing in there perhaps are some specifics in terms of what it might cost to fund some of the programs” recommended in the report, said Jacqueline Lampell, spokeswoman for the Department of Housing and Community Development. ‘‘That’s because we don’t really even know what the full impact of foreclosure will be.”

Foreclosures disproportionately occur from subprime loans, those offered to borrowers who have less than optimal credit and have difficulty getting a traditional loan. Subprimes tend to have higher interest rates and options such as adjustable and teaser rates, according to the report.

A Maryland Bankers Association survey showed that adjustable rate mortgages in Maryland grew from 1.6 percent of the total mortgages in 2000 to 11.7 percent in 2007.

Mosi Harrington, executive director of Housing Initiative Partnership Inc. in Hyattsville, agreed that she has seen a huge rise in foreclosures due to subprime loans.

‘‘Particularly in Prince George’s County, there was a high number who got subprime loans, and who got adjustable rate mortgages,” Harrington said. ‘‘We like fixed-payment mortgages, where people are not overstretching. But in this environment with such expensive housing, it’s difficult to afford anything.”

Prince George’s had the highest number of foreclosures in the second quarter of 2007, with 1,192 in the quarter, a 300 percent increase over the same period a year earlier.

But even comparatively affluent Montgomery County saw a 1,679 percent increase, going from 34 in the second quarter of 2006 to 605 in the same quarter of 2007.

Homes sold in foreclosure sell for less and can decrease property values around them, a trend that perpetuates ‘‘at-risk” communities, the report said. One task force recommendation is to identify and help those areas that face large foreclosure numbers.

There is a substantial likelihood that things will get worse before they get better, Perez said, citing Maryland’s strong economy as a delay for the foreclosure spike.

‘‘There’s no one magic bullet fix to foreclosure. That’s a fact,” Perez said.

‘‘Losing a house is a huge setback,” Harrington said. ‘‘It’s one of the 10 most traumatic life events, up there with losing a spouse.”

‘‘But it doesn’t mean you’ll never recover from it,” Harrington said.

Staff writer Kayleigh Kulp contributed to this report.