Maryland's housing market is improving, but many homeowners still face trouble.
Foreclosure activity in Maryland last month reached a 33-month high, according to RealtyTrac, which gathers real estate data nationwide. Among the states, Maryland had the largest year-over-year increase — 229 percent — in foreclosure starts in May.
"Every day, we just get a lot of struggling, hurting, scared homeowners," said Owen Jarvis, an attorney with the St. Ambrose Housing Aid Center in Baltimore. Although many homes going into foreclosure now are investments gone wrong, not owner-occupied properties, scores of homeowners are falling behind on payments, he said.
Lenders began the foreclosure process on just over 2,000 Maryland properties last month, according to RealtyTrac's figures. And last month's high foreclosure figure is not an anomaly. Maryland's foreclosure numbers have been among the highest in the country for about a year, ranking fourth last month.
Several factors are behind the state's elevated foreclosure rate.
Some lenders have dragged out the process, possibly biding their time until the market improves. The chief reason, though, is that Maryland changed its foreclosure laws after the housing bubble burst, requiring more oversight and a more drawn-out process for banks to claim property.
Maryland's extended foreclosure timeline has given many homeowners time to pursue relief, such as mortgage modifications, from lenders. At the beginning of the financial crisis, foreclosures in Maryland could be completed in a matter of days, leaving homeowners little time to react to bank actions.
The post-bubble spike in mortgage delinquencies prompted the General Assembly to rethink the state's foreclosure process. Legislators extended the amount of time required before a foreclosure auction, increased access to housing counseling services and instituted a mediation program.
"The governor early on decided that we, Maryland, did not want to be the state with the fastest foreclosure process," said Raymond Skinner, secretary of the Maryland Department of Housing and Community Development. "Our approach from the beginning has been to focus on our homeowners and keep as many people as we can in their homes."
The minimum number of days a foreclosure in Maryland could be completed went from 15 to 135, Skinner said. On average, it now takes 575 days to complete a foreclosure in Maryland, said Daren Blomquist, vice president at RealtyTrac.
But the high foreclosure activity, which is expected to continue for months, also might have a chilling effect on the state's budding housing recovery.
Maryland's lengthier foreclosure process helped create the state's current flood of foreclosure activity. In comparison, states such as Virginia, where the foreclosure process is faster, have already moved a significant chunk of troubled properties through the foreclosure pipeline. Virginia law allows foreclosures to go forward without the oversight of a judge, allowing a speedier timeline.
In the first three months of the year, Maryland had 39 foreclosures per 10,000 households. Virginia had 19.
"This certainly is not good for the market," Blomquist said. "The Virginia market does appear to be experiencing a stronger recovery, and these foreclosures are weighing down the Maryland market."
In May, median home prices in Maryland were up about 5.3 percent, according to the Maryland Association of Realtors. In Virginia, prices were up 7 percent, according to the Virginia Association of Realtors.
Pricing isn't necessarily tied to the number of foreclosures; home prices are influenced by many factors, including inventory and population growth.
And while prices in Maryland are recovering more slowly, the number of sales has increased significantly. In May, 13 percent more residences sold in Maryland than a year earlier, a slightly larger increase than in Virginia, according to the Realtor groups.
Foreclosure activity is up for all stages of the process in Maryland, including the filing of a foreclosure suit, judicial orders authorizing properties to be sold and conveyance to the lender, said Blomquist.
"It appears that the pig is moving through the python," Blomquist said.
When Maryland's mediation law went into effect several years ago, the number of foreclosure filings per month dropped from about 5,700 to around 1,800, he said. Homeowners who weren't able to get help through mediation have simply seen the inevitable delayed, he said.
The state had nearly two years of artificially low foreclosure activity before the past year of elevated numbers, Blomquist said. He thinks two years of increased foreclosures will balance out the previous period. One year down, he said, another to go.
Mark Kaufman, Maryland's commissioner of financial regulation, also said some lenders have been slow to move on foreclosure actions. Bank of America, in particular, he said, has a backlog of severely delinquent loans that substantially outweighs its market share. The bank did not respond to requests for comment.
The General Assembly's consumer protections have helped to keep people in their homes, proponents contend.
"Foreclosure mediations really have given struggling homeowners at least a small shed of control over the foreclosure action," Jarvis said.
According to data from the Office of the Comptroller of the Currency, a division of the U.S. Treasury Department, 30 percent more Maryland borrowers received loan modifications in the past 21/2 years than borrowers in Virginia, even though Maryland's mortgage market is one-third smaller. That translated to nearly 11,000 more homeowners aided in Maryland.
By the end of the first quarter of this year, Maryland borrowers had received $1.3 billion in relief from mortgage servicers through the national mortgage settlement, mainly in the form of lien forgiveness or short sale approval.
Virginia consumers have received just $933 million in relief from the settlement, which resolved accusations by 49 states' attorneys general and the Justice Department that the five largest mortgage servicers in the United States engaged in abusive servicing and foreclosure practices, including robo-signing.
The difference, experts say, is largely due to the difference in the state's foreclosure laws and the availability of assistance resources.
"Our processes and procedures have saved literally thousands of homeowners from going into foreclosure, and we feel good about that," Skinner said.
Skinner also notes that short-term delinquencies are down, an early indicator that the number of property owners falling behind on payments is on the wane.
Moreover, Skinner and Kaufman agree, banks are more likely to move through foreclosures as the market improves. Lenders know they can get a better price now, Skinner said.
"As the market firms, it's an easier decision to move what's been sitting on the sidelines," Kaufman said.
The proportion of distressed sales is down in nearly every part of the state, said Vladimir Kats, a real estate agent with the Kats & Associates team at Keller Williams Realty Baltimore who specializes in short sales.
"It's the right policy with a short-term perspective in mind, without a doubt," Kats said of Maryland's revised foreclosure process. Whether it will have the best long-term outcomes is unclear, he said.
"It does help one homeowner. Mediation does help. ... I've seen credit histories saved," he said. "Does it help the entire state of Maryland over two decades? That's a question that I just can't answer."