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At-risk loans rising in state

The Baltimore Sun

Though Maryland's foreclosure rate remains one of the lowest in the nation, the number of borrowers in trouble spiked sharply in the first three months of the year.

The share of loans in the foreclosure process in the state rose nearly 30 percent compared with the first quarter of last year, according to a Mortgage Bankers Association survey released yesterday. The share of borrowers behind on their payments rose nearly 20 percent.

The increase in loans in the foreclosure process here was the largest in nearly 10 years, though the association's chief economist cautioned that, mathematically, a shift in a relatively small number can translate into a big percentage change.

Rising loan defaults are touching a wide spectrum of Marylanders, and not only those living in struggling city neighborhoods. Rates in the suburbs are rising faster than in Baltimore, with defaults of pricey suburban homes, condo-conversion projects and even an undeveloped section of a new-home community in Harford County - which went back to the lenders at an auction this week.

Delinquencies and foreclosures dropped during the housing boom, as low interest rates and rising home prices helped financially pressed homeowners get out of trouble. But more borrowers began to fall behind as boom turned to slump. The final three months of 2006 was the first time since early 2002 - in the aftermath of the last recession - that the inventory of foreclosures increased year over year.

"I think there is a clear indication that the number of foreclosures is only going to increase," said Phillip R. Robinson, executive director of Civil Justice Inc., a Baltimore legal-help group. "The concern that I have as a public-interest advocate is, what do we do to help people in that pipeline save their home ... and how do we prevent people from getting into inappropriate loans?"

Nationwide, loans tipping from delinquency into foreclosure rose to an all-time high in the first quarter, led by subprime borrowers, the Mortgage Bankers Association said.

Falling home prices in some regions of the country have boosted the number of loans entering foreclosure because homeowners who get behind on their payments are finding it more difficult to sell the property or refinance into another loan, said Doug Duncan, chief economist for the Washington-based bankers group.

Average home prices have not dropped in Maryland, but the rate of increase and the number of home sales have plummeted. Meanwhile, interest rates, which just hit their highest level in 11 months, keep rising - bad news for people with adjustable-rate mortgages.

The state said this week it has commitments for $100 million to refinance Maryland homeowners from such ARMs into fixed-rate mortgages so borrowers aren't overwhelmed. "We're going to stand up ... to protect that building block of wealth for the middle class that is homeownership," Gov. Martin O'Malley said as he announced the initiative.

The share of homeowners in imminent danger of eviction is markedly lower in Maryland than in the nation as a whole, partly a reflection of the state's solid economic footing. About 5,700 Maryland homes were in the foreclosure process in the first three months of the year, according to the survey, which adds up to about a half-percent of all loans. The country's share was more than twice that. Only eight states and the District of Columbia had a better record.

But the signs for Maryland point to more trouble in the near future. Borrowers in the state were behind on about 36,700 mortgages in the first three months of the year. That's about 3.5 percent of all mortgages, a share that ranks the state closer to the middle of the pack.

The Mortgage Bankers Association survey includes more than 80 percent of first mortgages.

When a lender starts the foreclosure process, it's not too late for owners to save their home - or to try to sell it to protect their investment and their credit. But the Maryland foreclosure process has been criticized for being one of the fastest in the nation. And with the slumping housing market, it takes a lot more time to sell a house than it did a few years ago.

Some homeowners have found they cannot get offers quickly enough, or high enough to cover what they owe.

"Housing is in a recession, and we're seeing that reflected in prices," Duncan said. "If you're in a position where you can refinance or sell, but house prices have fallen below your outstanding loan balance, you're in trouble."

Still, Duncan said loan problems are particularly focused in a handful of states, ones with persistent job losses - Ohio, Indiana and Michigan - and ones that had a lot of real estate speculation, including California and Florida.

The number of homes in the foreclosure process in Ohio, Indiana and Michigan is so high that together the three states account for about 20 percent of all U.S. foreclosures. Ohio tops the country, its share of homes in the foreclosure process more than six times Maryland's.

"We're just urging people to take a deep breath, look at the big picture and recognize that the bulk of the mortgage market is very healthy," Duncan said.

Bloomberg News contributed to this article.

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