The share of Maryland homeowners behind on their prime mortgages shot past 4 percent for the first time this spring, a sign that loan troubles are spreading beyond borrowers with shaky credit.
More than 36,000 prime loans in Maryland were delinquent or in the foreclosure process in the three-month period that ended in June, up from 19,000 a year earlier, according to a Mortgage Bankers Association survey released yesterday. About 4.3 percent of all prime borrowers were behind this spring, including people at imminent risk of losing their homes.
The survey, which covers more than 80 percent of first mortgages, has data on prime loans back to 1998.
The share of Maryland prime borrowers in trouble was below 2 percent as recently as the beginning of last year, a sharp change in such a short period. Economists blame a corrosive mix of loose lending, falling housing values and economic slowing.
"You can look nationally - it's an issue that's definitely [spread] into the prime market, and so unfortunately it's touching a lot more people," said Vicki Schultz, senior adviser for consumer protection at the Maryland Department of Labor, Licensing and Regulation. "It's a tough time."
Rising foreclosures normally go hand-in-hand with job loss. This spate of loan problems started instead with weak underwriting and an explosion in so-called "exotic" loans, including ones that offered an initial option of a monthly payment so low that the loan balance would grow rather than shrink. But now the economy is playing a role, too.
The Labor Department said yesterday that the U.S. jobless rate rose to 6.1 percent last month, the highest it has been in nearly five years. The state's unemployment rate, though low compared with the nation's, has ratcheted upward in recent months as well. It was 4.4 percent in July, the most up-to-date state figure, but had been 3.4 percent as recently as February.
Maryland ACORN, a community organization that helps homeowners try to avoid foreclosure, says it's seeing more prime borrowers in need of help. Nearly all have loans with adjustable rates, including payment-option ARMs. The common theme: People borrowed too much.
"We've seen lawyers come through our office, we've seen contractors come through our office. ... This crisis has touched everyone at all income strata," said Stuart Katzenberg, head organizer of Maryland ACORN. "The narrative we constantly hear is, 'We met with a mortgage company or broker; we asked, "Can we really afford this?" and the answer was, "Absolutely." ' "
Delinquencies began to rise at the end of 2006 in Maryland, first showing up among borrowers with "subprime" loans meant for people with imperfect credit. That situation has only worsened since.
Thirty percent of subprime mortgages in Maryland were delinquent or in the foreclosure process in the second quarter of this year, a record. That's comparable to the national situation and represents more than 35,000 Maryland homeowners - about the same number as troubled prime borrowers. There are many more total prime loans here than subprime.
The bright spot for Maryland is that its overall mortgage troubles remain less severe than those of a number of other states - particularly California and Florida, which together have driven the national rate to record highs. Maryland ranks 20th for its share of mortgages that are behind but not yet in the foreclosure process, the Mortgage Bankers Association said.
One reason the state's rank isn't better, despite its high average income, is that home prices soared here during the boom and are trending down now. "Anytime you have the issue with home prices falling, then fewer of those defaults can be worked out," said Jay Brinkmann, the mortgage bankers' chief economist.
The number of Maryland loans that lenders started trying to foreclose on dropped for the first time in two years, to about 7,000 in the second quarter from about 8,000 in the first quarter. But Schultz said that number was held down by a change in state law. Lenders now must notify borrowers 45 days before filing a foreclosure action with the courts, rather than notifying them after the fact, shortly before auction. That change went into effect at the beginning of the second quarter.
Clarence Snuggs, deputy secretary of the Maryland Department of Housing and Community Development, said the state expects to soon hammer out an agreement with loan servicers about handling borrowers' requests for loan modifications and repayment plans in a more timely fashion. The state also has a foreclosure-help hot line, 877-462-7555, which has been getting 1,500 to 2,000 calls a month.
Tarahn Harris, 32, feels fortunate that he was able to get assistance from Maryland ACORN. The social worker took out two loans when he bought a $125,000 house in Baltimore at the beginning of 2006, the larger of the two an interest-only mortgage with an adjustable rate. The rate kept rising until it was just too much, and he was told he couldn't refinance because the value of the home had dropped. He sought help this spring, after the payment on the larger mortgage was double the original amount of around $700 a month.
"I was at my wits' end," Harris said.
Now his monthly expense is about $980 for both loans - a big relief. His housing counselor was able to negotiate the refinancing, which Harris couldn't accomplish on his own.