In a sign that Maryland could be making strides toward helping struggling homeowners keep their houses, foreclosures fell almost 16 percent in the three-month period that ended in September, compared with the second quarter, according to statistics released yesterday.
But state officials warned that the drop is likely temporary, with the foreclosure crisis expected to intensify as a weak economy continues to hamper the job and housing markets. And despite this summer's improvement, foreclosure figures are still up almost 14 percent compared with a year earlier.
"There are so many issues out there in the national economy that will impact us," said Maryland Housing Secretary Raymond A. Skinner after releasing the figures. "While we have made progress, there is still a lot of work to do."
State officials attributed the quarterly drop - 7,974 foreclosures in July through September, from 9,453 in the second quarter - to more state-sponsored programs for financially strapped homeowners. A state law that took effect in April also requires a longer wait before people who fall behind on mortgage payments can have their homes taken in foreclosure.
Officials said a quarter-to-quarter comparison showing the decline more accurately reflects the state's foreclosure trend instead of a year-to-year assessment, before the law was enacted.
But state housing leaders acknowledge that the foreclosure problem remains a troubling issue since more homeowners are likely to lose their jobs in this weak economy. The state's 5 percent unemployment rate reached a 12-year high in October, and many economists expect it to increase more next year.
Homeowners also will likely have trouble making monthly payments as mortgage rates begin to reset during the next couple of years on alt-A loans - the riskier-than-prime loans that required little or no documentation of employment or income. The rates on more than 64 percent of alt-A loans in Maryland are due to reset starting in August, state officials said.
In what state officials said indicates that more foreclosures are on the horizon, lenders have filed 40,000 notices of intent to foreclose since April, said Mark Kaufman, deputy commissioner of financial regulation for the Department of Labor, Licensing and Regulation. Emergency legislation took effect that month requiring lenders to notify borrowers 45 days before filing for foreclosure with the courts, instead of notifying them shortly before an auction.
Joe Cox, an organizer for Maryland ACORN, a community organization that helps homeowners try to avoid foreclosure, said the new law contributed to the decline in the quarter, but it is likely a "blip."
Cox said ACORN's Baltimore office is seeing up to 20 homeowners a week seeking foreclosure-prevention counseling. The group's Prince George's County office is trying to help even more homeowners.
"Until there is something to force the banks to modify loans for borrowers ... it's going to get worse," he said.
The biggest share of foreclosures in the state were in Prince George's County, with 35 percent, followed by Montgomery County, with more than 14 percent, and Baltimore, with 11 percent, according to data released by RealtyTrac, an online source of foreclosure statistics. RealtyTrac was criticized as sharply underestimating foreclosure numbers in 2006, which some believe led to an inflated increase reported in 2007.
Yesterday, Massoud Ahmadi, director of planning and research for the state housing department, defended the figures, which he said are comparable to statistics from the Mortgage Bankers Association. He said the numbers are "scrubbed" to ensure that no property is counted as a foreclosure more than once.
Maryland ranks 20th in the nation in terms of the number of foreclosures in the third quarter, an improvement from the beginning of the year when it ranked 12th. In a five-state region that also includes Washington, D.C., Maryland had the third-highest number of foreclosures, behind Virginia and Pennsylvania for the third quarter.
"The foreclosure situation is still pretty dark," said Celia Chen, senior director of housing economics for Moody's Economy.com. "I would expect that foreclosures would rise again in the fourth quarter of this year, and probably even to the beginning of next year. ... Given the weak global economy now, the prospect for a reversal of the trend anytime over the next quarter or two is pretty dim."
Many borrowers took on mortgages at the height of the housing boom, believing they could eventually refinance to a lower loan rate or sell their homes if values increased.
But home prices in Maryland fell 6 percent in the third quarter compared with the corresponding period a year earlier, according to the Office of Federal Housing Enterprise Oversight.
State officials said yesterday that they began trying to address the foreclosure crisis more than a year ago through the MDHope.org Web site, a consumer hot line and various financing products.
About 100 people have received assistance through programs that include allowing borrowers to refinance from subprime or adjustable rate loans; targeting credit-challenged consumers who have been delinquent; and offering up to $15,000 through a deferred, no-interest loan to homeowners who are delinquent.
Other foreclosure-prevention efforts have resulted in help for 4,041 borrowers to adjust or refinance their mortgages. The state also is in line for $46 million in federal neighborhood stabilization funds.
Skinner said only a modest number of Maryland residents have been able to use the state loan programs because many simply don't qualify due to lack of equity in their homes or creditworthiness.
But for those who do, the programs work, said Mary Klipa, a Dundalk homeowner who found mortgage relief through a state program.
Klipa said her income was reduced after her marriage separation and, "I found myself in a situation where I became desperate and falling behind."
She said she was never notified of a foreclosure and didn't realize her lender had started the process until "there were people walking in my front yard asking my kids how many bedrooms" the house had.
A lender she described as predatory offered to help, leaving her with an adjustable rate loan that was about to reset to a much higher and unaffordable rate. She was trying to sell the house when she heard about the state's Lifeline program. She refinanced and kept her house.
"This was my last hope," she said. "It's been a year, and everything is fine. The interest rate is great and the payment is affordable. It worked for me."
Baltimore Sun reporter Hanah Cho contributed to this article.