- The Washington Times - Tuesday, November 17, 2009

A recently released report by the Urban Institute, “Foreclosures in the Nation’s Capital,” urges a call to action, policy changes and increased oversight by local governments as it provides an assessment of the region’s mounting foreclosure crisis.

While 4,000 area home loans were in foreclosure in January 2007, according to the report, 33,600 area home loans were facing foreclosure by June 2009. This represents an increase of 740 percent.

Making the situation worse, the scramble for debt-relief services by homeowners facing foreclosure has created opportunities for scams. According to the FBI, Virginia, Maryland and the District are among the top 10 jurisdictions experiencing mortgage fraud.

A statewide Mortgage Fraud Summit will be held Wednesday in Sykesville, Md., using Prince George’s County as a model for other counties to follow.

In September 2008, Democratic Maryland Gov. Martin O’Malley awarded $162,500 to the Prince George’s State’s Attorney’s Office to create a unit dedicated to prosecuting mortgage fraud cases.

“Under old law, we could only prosecute on the statute of theft,” State’s Attorney Glenn F. Ivey said. “The law has since been amended so we can prosecute for the crime of mortgage fraud.”

Mr. Ivey is slated to deliver the opening remarks at Wednesday’s forum.

“This is a fast-moving and adapting criminal element that goes through different mutations and evolves quickly,” Mr Ivey said of mortgage fraud schemes. “We are responsible to taxpayers to stay ahead of the criminals.”

The increase in area foreclosures is also affecting local budgets.

“Local governments are facing a fiscal crisis largely in part grounded in the housing and foreclosure crisis,” said Dave Robertson, executive director of the Metropolitan Washington Council of Governments.

As of June, about 2.7 percent of all Washington-area mortgages were in the foreclosure process. The national rate is 2.9 percent.

When the foreclosure process is completed, the bank acts with legal authority to take back the property, generally requiring the eviction of the delinquent homebuyer, which is a hardship not only on the individual or family but on the neighborhoods left with vacant homes and local governments unable to collect tax revenue.

“The first impact will be an increase in the need for services,” said Kathryn Pettit, a spokeswoman of the Urban Institute. “Nonprofits and government agencies are facing an exploding need while at the same time absorbing a cut in funding.”

Subprime loans, issued to higher-risk borrowers and carrying higher interest rates than traditional prime loans, initially drove the surge in the region’s foreclosures, according to the Urban Institute report. Nearly 11 percent of all area mortgages were subprime loans, but they accounted for nearly half of the mortgages in foreclosure.

However, there also has been a growth in foreclosures stemming from prime loans, which are issued to borrowers with high credit scores and documented steady income.

A rise in regional unemployment from 3.8 percent in June 2008 to 6.6 percent in June 2009 is impacting prime loans. Homeowners facing a reduction or elimination of income are caught in a Catch 22. Formerly employed, and thereby having been considered lower risk when they applied for a mortgage, they are considered higher risk when they lose a job, and they become increasingly unable to modify their loan.

In June, about 8 percent of area loans, 104,200 mortgages, were delinquent but not yet in the process of foreclosure. Upcoming foreclosures and homes 90 days delinquent on their mortgage payments could dump an additional 44,000 homes onto the market in the coming months, according to the report.

“The problem is not going away,” Ms. Pettit said.

As of June, Prince George’s County’s foreclosure rate was 5.2 percent, with Charles County, Md., at 3.9 percent and Virginia’s Prince William County at 3.7 percent. Those three counties have led the region.

Prince George’s, where 25 percent of mortgages are from subprime loans, compared to 11 percent regionwide, has pockets of concentrated foreclosures, which drives the escalating rate.

The detailed data in the Urban Institute’s report was driven by zip codes.

Bladensburg (20710), Riverdale (20737), Adelphi (20783) and Brentwood (20722) had rates ranging from 7.3 percent to 9.3 percent.

Montgomery County’s foreclosure rate was 2.3 percent. However, Gaithersburg (20877), Silver Spring (20903) and Burtonsville (20866) have been trouble spots with rates ranging from 4.3 percent to 5.4 percent.

Within Fairfax County, with 1.8 percent of homes in foreclosure, Herndon (20170), Springfield (22150) and Lorton (22079) have been hit the hardest, according the report.

Alexandria and Arlington, together, had less than 1 percent of loans in foreclosure, representing the lowest rate in the region. The District’s rate was 1.8 percent.

Ms. Petitt says she has been encouraged by the report’s reception among local government and service providers in what has been an ongoing discussion.

“The area is ready for advice on ways to use data strategically to improve services,” Ms. Petitt said.

• John Muller is a freelance journalist living in Montgomery County.

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