Baltimore Foreclosures Surge Again as Legal Logjam Breaks

Foreclosures are surging again in Baltimore, which became a symbol of the U.S. housing crash when the city’s desolate blocks of abandoned row homes served as a backdrop for the HBO TV series “The Wire.”

Maryland’s biggest city saw foreclosures almost triple in July from a year earlier to 2,073, the biggest gain among the 20 largest U.S. metropolitan areas, according to data released today by RealtyTrac. Baltimore was one of five cities including Miami and New York that showed more properties getting default, auction and repossession notices, bucking a 32 percent nationwide decline to 130,888.

More homes are being seized after banks broke the legal logjam of state legislation and court rulings that kept some lenders at bay after the housing boom went bust in 2008. Foreclosures stalled in 2010 when Maryland passed a law requiring banks to try alternatives to eviction.

“These are not new loans going bad,” said Daren Blomquist, vice president of RealtyTrac. “This second wave of foreclosure activity is the unintended consequence of more aggressive prevention efforts on the parts of some states during the housing crisis, which initially slowed down activity.”

Nationwide, 71 percent of loans in foreclosure were originated between 2004 and 2008, according to RealtyTrac.

Lesson Learned

Sombo Hilton, office manager for a non-profit that promotes homeownership in Baltimore, said she lost her $250,000 house to foreclosure earlier this month. She bought the property, located about 6.5 miles outside of the city, with no money down in 2008, she said. She was making $33,000 a year working for Habitat for Humanity.

“With my income and my credit, I shouldn’t have been able to buy the house,” Hilton said. “I realize that now that I work for a housing organization. If I knew what I know now, I would’ve never bought the house.”

Baltimore was one of the cities hit hardest by the housing crisis and received $5.8 million from the U.S. government’s Neighborhood Stabilization Program, which directed $7 billion to cities across the country to help communities that suffered from foreclosures and abandonment.

The city -- home to money managers including Legg Mason Inc. and T. Rowe Price Group Inc. -- also was among the first to accuse Wells Fargo & Co. in 2008 of discriminatory lending that targeted black and Hispanic homeowners, which was followed by lawsuits across the nation.

Discriminatory Lending

The bank reached an agreement with the city in 2012 and separately set up a $50 million fund for down-payment assistance in eight regions, including Baltimore, where the U.S. alleged the discrimination against minority borrowers had a significant impact.

The city’s first wave of foreclosures started in May 2007 and there have been more than 32,700 filings since then through July, according to RealtyTrac.

Maryland’s mediation program, which requires that homeowners meet with lenders and an independent party, slowed foreclosures. The average time to repossess a home increased to as many as 634 days, or more than 20 months, in the fourth quarter of 2011 from an average of 379 days in the second quarter of 2010, right before the law was enacted, according to RealtyTrac’s Blomquist.

Maryland had the country’s second-highest foreclosure rate in July after Florida, RealtyTrac data showed. Foreclosure filings in Baltimore jumped 182 percent from a year earlier.

Foreclosure Costs

Rising foreclosures will increase the costs to the city and local residents, according to Katherine Newman, dean of the school of arts and sciences at Baltimore-based Johns Hopkins University.

Foreclosures cost Baltimore residents more than $1.5 billion between 2008 and 2010 and the city lost $13.6 million in property taxes in 2010 alone, according to a 2011 study Newman co-authored for a U.S. congressional hearing.

“It’s just such a vortex of evils,” she said. “Empty houses, especially in Baltimore, can mean public safety problems.”

Blocks dominated by boarded-up vacant homes in the city became part of the staging for drug deals and murders on HBO’s “The Wire,” a police drama set and produced in parts of Baltimore that aired for five seasons ending in 2008. The show, created by writer David Simon, had scripts that revolved around narcotics rings, race, politics and education.

Ripple Effect

Foreclosures have a ripple effect on neighborhoods that “lowers the equity that all the homeowners in that area have,” Newman said. “It limits their borrowing power for everything from their children’s education to healthcare to retirement.”

The U.S. homeownership rate fell to 65 percent this year, the lowest since 1995 and down from 69.2 percent in 2004, according to Census Bureau data.

About 7 million homeowners have already lost properties through foreclosure or by selling for a loss since 2007, according to RealtyTrac. In some states, foreclosures are surging after years of judicial delays lengthened the process.

Bank repossessions at least doubled in the states of Maryland and New York from a year earlier, and were up 67 percent in Connecticut, 40 percent in New Jersey and 20 percent in Ohio. Nine of the nation’s highest metro foreclosure rates in July were found in Florida cities, the report showed.

Dwindling Supply

While the number of foreclosures across the U.S. was still 54 percent above the historical average of 85,000 filings a month before the property crash, it’s 64 percent below the 2010 peak, according to the RealtyTrac report. The supply of distressed properties is dwindling as home values rise at the fastest pace in seven years, helping to fuel the recovery as the economy improves and the Fed for now keeps mortgage rates near record lows.

The share of seriously delinquent mortgages -- those more than 90 days behind or in the foreclosure process -- plunged to the lowest level in almost five years, the Mortgage Bankers Association said last week. As the broader housing recovery strengthens, delinquent borrowers have been able to catch up on payments or seek loan modifications.

Home prices are still 24 percent below the peak, and mortgage rates, still near historic lows, are down from 6.8 percent in 2006 and more than 10 percent in 1990. That’s prompting buyers and private-equity firms building an industry of single-family houses for rent to compete for a limited inventory of properties on the market, fueling further increases.

Older Homes

More foreclosures won’t necessarily lead to a surge of new investment in Baltimore’s real estate, said Jack BeVier, partner at Dominion Group, which purchases and renovates homes to rent in Atlanta and Baltimore.

The housing stock is older and makes it a tougher market for landlords to enter, he said. Average renovation costs on Dominion’s Baltimore homes are $60,000 compared with $20,000 in Atlanta.

Tight inventory has been driving prices higher as local investors come off the sidelines and banks continue to buy back foreclosures at auction, according to BeVier.

The median home price in the second quarter of 2013 increased to $262,700 in Baltimore, the highest since 2008, National Association of Realtors data show.

Soaring values won’t be enough to help many already delinquent homeowners. Hilton, the woman who recently lost her home, now spends her days at the Neighborhood Housing Services of Baltimore on the phone with residents in foreclosure.

“All day long people call here crying, wanting to keep their home,” she said. “It’s heartbreaking.”

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