The number of foreclosures in Maryland continues to climb as the housing market deteriorates. While the problem is widespread, the number and rate of foreclosures varies considerably throughout the state. In Kent County on the Upper Shore, there were 52 foreclosures filed in 2007, a 4 percent increase over the previous year. Of course, though, the level of real estate activity in Kent County is small, only 230 sales were reported during the same period.
On the other hand, there were 6,435 foreclosure cases in Prince George's County last year - up 89 percent, almost equal to the number of houses sold - 7,568. In Montgomery County, foreclosure actions were up 129 percent to 2,980 compared to 10,360 houses sold in Montgomery during the same period.
The root causes of the problem are the same everywhere. In many cases, people took out mortgages with adjustable rates, hoping to refinance before the rate adjusted upward to a level they couldn't afford. In other cases, people have been overwhelmed by increases in the cost of energy and food and haven't been able to meet their mortgage payments. Some bought houses that they couldn't afford in the hopes that they would be bailed out by an increase in the value of the property - something that seemed a sure bet at the time.
In retrospect, it's easy to see that housing prices couldn't keep increasing at such a rate; incomes weren't increasing fast enough to support it. And we're now seeing the correction. Home prices are dropping across the state, although not as fast here as in many other states. In many cases, houses are now worth less than the mortgages they secure. As homeowners are unable to make payments on their mortgages, the banks, hedge funds and other investors that own the mortgages are taking significant, sometimes spectacular losses. And, of course, with home prices down and a glut of homes on the market, construction of new homes has suffered a significant decline, leading to job losses and still more foreclosures.
So, homeowners and lenders are both losing money. Where did all the money go? Well, mostly it went to us. It went to us when we happily sold houses at very high prices and pocketed the proceeds, and when we used the inflated value of our houses to take out home equity loans to buy cars or boats or second homes or send our children to college. Mortgage brokers, builders, real estate agents and brokers, banks, hedge funds and others also profited handsomely. Now things are looking grim.
Everyone, of course, is looking for a solution to the problem. But it's not easy, since not only do many people owe more on their homes than they're worth, but, with the economy worsening and prices of energy and food rising, people are finding it more and more difficult to keep up with current payments, much less the higher payments that many will face when a record number of adjustable mortgages resets to higher rates this year and next.
In the Maryland General Assembly, three bills to address the problem have cleared committee this week and, with broad support, should be passed easily. The first extends the time required to foreclose on a property in Maryland from fifteen days - one of the shortest in the nation - to four months. The idea is that this longer period will provide more time to try to work out alternatives to foreclosure.
The second bill makes mortgage fraud a separate crime, punishable by fines and significant jail time. it also allows those victimized by mortgage fraud collect punitive damages. The third bill targets 'mortgage rescue' firms that takes houses away from people on the pretext of 'saving' them from foreclosure. These all make sense to me.
Nationally, there's been very little action. The Bush administration has announced a voluntary plan under which lenders will freeze rates for some subprime mortgages, but few are expected to benefit. The Senate is considering a bill which would allow bankruptcy judges to reduce mortgage amounts or interest rates on certain mortgages. Republicans have filibustered the bill, though and the President has opposed the bill. The Senate bill would also authorize the states to use bonds to finance the purchase of foreclosed homes, thus helping keep home prices from deteriorating further.
Frankly, I think the Senate bill sounds good given the current situation, but it wouldn't be a panacea and the odds are against it becoming law anytime soon. The President says "Why don't we let stimulus package one have a chance to kick in?" referring to the plan to distribute $150 billion worth of incentives, notably a tax rebate worth up to $1,200 for a married couple.
That's scary; if the price of houses declines so much by May that we can buy a house for $1,200, then we're in worse trouble than we thought.