Archive for the 'Maryland Articles' Category

Since the start of the foreclosure crisis in 2007, Maryland has been in the forefront of the fight against house repossession. The state created a task force to promote and preserve homeownership in the area. Some of the task force’s recommendations include giving ample time to distressed homeowners to find ways to avoid foreclosures and severe penalties for illegal mortgage providers.

A recent foreclosure prevention initiative is a workshop where housing officials heard experiences of distressed homeowners who are at-risk of losing their properties to foreclosures. Some troubled homeowners shared their stories with Governor Martin O’ Malley and other officials during the foreclosure prevention workshop in Prince George’s County.

The workshop also provided homeowners with updates on efforts of the state to reduce the number of foreclosure homes and at the same time, motivated borrowers to seek assistance.

Another effort to stave off foreclosure auction in Prince George’s is a federally-funded program to help residents purchase foreclosure houses. The program provides as much as $20,000 to first-time buyers to allow them to purchase foreclosed properties in neighborhoods severely affected by the foreclosure crisis.

The Down Payment on Your Dream program targets areas in Upper Marlboro, Capitol Heights, District Heights and Fort Washington and portions of central and northern county.

The program is made possible by the $10.8 million funding under the Neighborhood Stabilization Program. The county aims to put families into seven homes in the first week of the program’s operation. It targets to place families in 700 repossessed homes using the grant.

In order for first-time homebuyers to become eligible for the program, they must earn not more than 120 percent of the $98,000 median household income in the county. If buyers will purchase properties in target areas, they will receive a down payment assistance of $20,000 or equivalent to 7 percent of the total value of the property, whichever is lower.

Buyers must make the properties they purchased their primary residences. They are not required to repay the money they received under the program if they stay in the properties for 10 years.

In the initial stage of the program, eight foreclosure houses were sold and three are located in Upper Marlboro, the second highest in the county in terms of foreclosure rate in July.

Data showed that Prince George’s is the county in Maryland hardest hit by the foreclosure crisis with almost 5,000 foreclosure properties in July. Statewide, Maryland posted 9,320 foreclosure filings in the first quarter of this year.

About 800 lawyers who volunteered to help lessen Maryland foreclosures are only now discovering large numbers of subprime borrowers who were enticed with initially cheap but extremely risky mortgage schemes. They are now concluding that one of these risky mortgage options, called payment option arm (POA), caused thousands of houses in the state to become repo homes.

POA loans were used by lenders like the bankrupt IndyMac and World Savings to entice more customers to take out mortgage loans even if the lenders knew these borrowers would not be able to pay the loans once the teaser payment periods were over. Many of these borrowers, whose houses are now repos houses, were made to believe the equity they will build up during the teaser payment periods will be enough to ensure affordable monthly payments during the longer part of the payment period.

POA loans are considered by many analysts the most toxic mortgage loan ever created because it requires only a small amount of money from borrowers during the first months. Borrowers were given three options for initial monthly payments: a small percentage of the monthly interest, interest-only payment and the option of paying the properly computed monthly amortization.

The last option however was not recommended by lenders wanting to reach sales quotas and commissions, thereby increasing the number of unqualified borrowers whose houses later became repo homes.

The federal government and many states, recognizing the deadliness of POA loans, have passed regulations to make POA illegal. But thousands of borrowers who knowingly or unknowingly got POA mortgages are now struggling to keep their properties from becoming repo homes.

The case of a retired government employee illustrates the harmfulness of POA loans. When she took out her loan, her lender promised that her monthly payments for the first five years would be low and that her total payments for five years would be enough to keep her monthly payments low after the teaser period.

Now as she is struggling with her monthly payments and news of thousands of repo homes, she wants to apply for loan refinancing, but she is not qualified because the value of her house has become $70,000 below her mortgage loan amount.

Members of the Maryland lawyer group, called Civil Justice Inc., have also found out that they are facing another problem besides the POA loan and large numbers of repo homes—the repackaging of mortgage loans into mortgage-backed security packages which were sold and resold to various investors.

Statistics are showing that Maryland foreclosures dropped by almost 16 percent during the third quarter of 2008 from figures registered during the previous quarter. Quarter 2 of 2008 registered 9,453 foreclosures, which dropped to 7,974 during Quarter 3 of 2008.

According to state officials, the drop was a result of foreclosure prevention programs sponsored by the state including a new law requiring a longer grace period before homes are converted into repossessed houses.

These figures also ranked Maryland to the 20th state with most foreclosures during the third quarter, a remarkable improvement from 12th at the start of the year. Prince George’s County raked in the highest percentage with 35 percent followed by Montgomery and Baltimore at 14 Percent and 11 percent respectively.

During the height of the housing bubble a few years ago, several borrowers were able to take on high-risk mortgages with adjustable interest rates. These homeowners were relying on the continued increase of home prices, which would allow them to refinance at lower interest rates or sell their homes and make big profits.

A few years later, the bubble burst and interest rates jacked up and home values dropped tremendously leaving homeowners underwater. These homeowners eventually defaulted on their mortgages, which led to foreclosures.

State official in Maryland are still not confident with the current drop in figures and believes that the crisis in foreclosures would continue boiling. They are basing this prediction on the still weak economy and the possible resulting job losses that homeowners would incur.

The unemployment rate is already a high 5 percent and experts are expecting a higher rate by 2009. This situation would also be aggravated when interest rates on subprime mortgages begin to reset starting August next year. State officials are expecting bigger fallouts on foreclosures.

The state has stepped up its campaign to help troubled homeowners through several assistance programs including refinancing from subprime loans through deferred, no-interest loans for delinquent homeowners. The state is also expected to receive $46 million from the federal Neighborhood Stabilization Program.