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Gov. Larry Hogan’s order amends his April directive suspending all foreclosure actions due to the outbreak of the COVID-19 virus. (File photo)

Reason for optimism among gloomy foreclosure figures

Maryland’s housing market continues posting disappointing foreclosure numbers but there are signs the trend may be coming to an end.

A report released by real estate information firm RealtyTrac on Thursday showed Maryland having the second-highest foreclosure rate in the nation behind Florida last month. According to the report, one in every 553 housing units in the state had a foreclosure notice in July. Baltimore city, Prince George’s, Charles and Caroline counties had the highest foreclosure rates in the state.

“It really has been about two years now … that we’ve seen an upward trend in Maryland foreclosure numbers even as the rest of the country’s numbers are going down,” RealtyTrac Vice President Daren Blomquist said.

But Blomquist said that he expects Maryland’s days at No. 2 in the foreclosure rate rankings, where the state has remained for six months, may be coming to an end — possibly as soon as the second half of this year. The major reason for Blomquist’s optimism comes from the fact that 80 percent of the loans in foreclosure in the state were made prior to 2008.

That means the majority of the loans causing the high foreclosure rate date back before the recession. These bad loans are still shaking out because of a state law passed in 2010 requiring lenders to offer borrowers mediation before starting foreclosure, which has slowed down the process. That law resulted in dramatic decreases in foreclosure activity between August 2010 and June 2012 while many states were posting their worst foreclosure numbers.

Although the new law forced a mediation process and slowed the pace of foreclosures it didn’t result in all those delinquent loans being settled. So, the current ranking is by and large the product of the 2008 recession and not a sign of larger problems in the state.

“The good news is this is not a brand new wave of foreclosures that’s happening in Maryland because of some underlying economic problem,” Blomquist said.

Kathleen Murphy, president and CEO of the Maryland Bankers Association, shared Blomquist’s optimism about the future of Maryland’s housing market and agreed with his assessment that the state’s foreclosure rate is the result of working through a backlog of foreclosures.

She said another encouraging sign for the market is that the number of underwater borrowers has fallen 47.5 percent nationally since the start of 2012.

“As the housing market continues to recover the number of individuals who have restored equity in their homes have continued to improve,” Murphy said.

Another reason to be optimistic is that foreclosure starts were down in July by 13 percent, according to RealtyTrac. The latest Mortgage Bankers Association survey found the amount of loans with foreclosure starts fell 11 basis points in the second quarter and the percentage of loans in the foreclosure process fell by 24 basis points by the end of the quarter.

“The fact that the starts were down is an indication that the numbers may be starting to turn a corner, and we actually saw that in two out of the last three months, in May and now in July, we’ve seen those foreclosure starts go down. And prior to May those foreclosure starts had been going up consistently every month,” Blomquist said. “So, that is an early indication that I would expect in the second half of this year the Maryland numbers to drop back down.”

Despite the optimism there have been some indicators that all may not be well in the state’s housing market. The Mortgage Bankers Association did find that Maryland was ranked second in the nation for foreclosure starts in the second quarter following New Jersey.

The survey also found that Maryland’s delinquency rate in the second quarter was 7.1 percent, an increase of 21 basis points from the first quarter. According to the survey, that means Maryland was No. 11 in the country as far as delinquency rates.

But Murphy said that those figures don’t tell the whole story because they are not seasonally adjusted and that looking at the figures year-over-year paints a more accurate picture. She said a more significant number is that the total delinquency rate is down 1.06 percent from the same time last year. She also said mortgages that are seriously delinquent, overdue by at least 90 days, fell to 3.13 percent this year from 3.30 percent at the same time last year.

“The bottom line is that the latest data shows the positive trends are continuing, both in terms of our working through the backlog of mortgages in foreclosure, but also of an improving housing market,” Murphy said.