2/9/2015 10:02 AM
Report: Foreclosure Crisis is Winding Down
-- USA TODAY, December 12, 2013
The Foreclosure Crisis Is Over, According To RealtyTrac
-- Property Wire, September 12, 2014
For those who follow the housing market, you may have read repeatedly that the foreclosure crisis has ended. Here is some news for you: the foreclosure crisis is definitely not over. For the past few years, pundits have been stating that the foreclosure crisis has tapered off, and yet foreclosure rates have remained stubbornly high and above historic norms for much of the United States, and in Maryland in particular.
As the national economy recovers, the foreclosure crisis may recede from view, but in Maryland, which recorded the third highest rate of foreclosure in the country in 2014, residents will continue to face the heavy burden of the mortgage crisis in the years ahead. While predicting what may occur in 2015 in the home ownership market is exceedingly difficult, here are a few legal and policy trends related to foreclosures that may prove important:
The rate of increase in foreclosures may slow down in Maryland, but foreclosures will continue to be a big issue
According to Maryland’s Department of Housing and Community Development, the total foreclosure activity in Maryland increased in 2014 from the previous year, and has increased every year since mid-2012. However, the rate of increase in foreclosures has fallen, signifying the possibility that the worst of the foreclosure crisis has passed. It is possible that 2015 will see the total number of foreclosures in Maryland go down from the past year, but it is likely that they will remain higher than the historical norm.
But why are foreclosure rates stubbornly high in Maryland? It is true that many of the current foreclosure filings are part of a backlog left over from the recession, and that lenders are now moving ahead with foreclosing those homes. The latter months of 2014 saw a surge in foreclosure filings and foreclosure auctions in several states. According to RealtyTrak, this indicates that lenders are “gearing up for a spring cleaning of deferred distress [properties] in the first half of 2015 in some local markets.”
The CFPB rules on mortgage servicing will continue to need to be enforced against noncompliant lenders
In January 2014, the Consumer Financial Protection Bureau enacted rules giving homeowners new rights and greater protections from harmful practices by lenders. These rules will need to be enforced against noncompliant lenders through state and federal lawsuits.
Under the new CFPB rules, lenders, with a few exceptions, must wait to file a foreclosure proceeding (in Maryland, this would be the Order to Docket) until a borrower is more than 120 days delinquent. Previously, under Maryland law, a lender had to wait only 90 days before filing an Order to Docket. This gives borrowers more time to submit a loss mitigation application to help prevent a foreclosure. Importantly, the CFPB rules prohibit lenders from starting a foreclosure while they are also working with a homeowner who has submitted a complete application for loss mitigation. Therefore, the new CFPB rules prohibit lenders from “dual tracking” – i.e. simultaneously reviewing a loan modification application while proceeding with a foreclosure sale. Finally, if a borrower submits a complete application for assistance early enough (usually 37 days or more before a foreclosure sale date), the lender must evaluate the borrower for all the options that may be available to the borrower, before proceeding with a foreclosure sale.
While these rules are now federally required in all states, including Maryland, it is likely that in 2015 we will continue to see violations by lenders and their attorneys, and homeowners and their advocates and state and federal regulators will need to proactively push the lenders to comply with the rules.
The recovery from the foreclosure crisis will be slower for minority and immigrant communities in Maryland
Another tragic factor of the foreclosure crisis is the exceedingly negative impact it had on minority communities, most notably African-Americans in Maryland. As Maryland housing prices stabilize, minority-majority jurisdictions such as Prince George’s County will take longer to recover by a range of indices. According to an exhaustive Washington Post investigation, 1 in 7 African Americans in the United States owed more on their mortgages than their homes were worth in 2013. However, only 1 in 18 white homeowners were underwater. Additionally, the top 50% of African American families is now left with less than half of the wealth they possessed in 2007, thereby gutting the economic health of the heart of the African American middle class. For white homeowners, the wealth declined by only 14 percent. In Prince George’s County, which is the nation’s highest income minority-majority county, homeowners lost far more wealth during the financial crisis than families in neighboring, majority-white suburbs. Unfortunately, 2015 may see a continued distinction in the experience of minority homeowners and white homeowners when it comes to housing prices, home equity, and post-foreclosure recovery.
It is worth noting that ten jurisdictions represented 85.6 percent of all foreclosures events during the 3rd quarter of 2014 in Maryland, with Prince George’s County, Baltimore City, and Baltimore County representing almost half of all foreclosures. Prince George’s County with 2,684 foreclosures had the largest share of foreclosures statewide. Thus, homeowners in these areas continue to need assistance to navigate the foreclosure process and ensure that they receive the best outcomes possible. This benefits not only the individual homeowners but also the home values of their neighbors.
Individuals who previously lost a home to foreclosure may re-enter the housing market again in 2015
As former homeowners strengthen their financial situation in 2015, we may see an increase in the phenomenon of the “boomerang buyer” - those who lost their homes but are now interested in becoming homeowners again. This phenomenon led the government to relax some of their borrowing restrictions in 2014. The Federal Housing Administration (FHA) has changed its regulations to help borrowers whose credit was negatively affected due to a hardship such as a job loss or injury. These borrowers may be able to receive a mortgage and buy a home again after only a one-year waiting period through the FHA's new lending program, dubbed Back to Work. The FHA previously required these buyers to wait three years before applying for a mortgage.
Under the FHA’s new rules, buyers who can document they lost their home to foreclosure or filed for bankruptcy because they were laid off or because their income was reduced by at least 20 percent will be eligible to apply for a loan after paying their bills on time for a year. The change is effective immediately and is effective until September 2016. You can read more about the revised FHA guidelines here.
To address the increasing number of former homeowners who need legal assistance, Civil Justice will continue its Foreclosure Recovery program, which assists former homeowners by providing a free 90 minute consultation with an attorney to discuss post-foreclosure legal issues including debt collection and credit issues. More information about the Foreclosure Recovery Program can be found here.
Foreclosure is not inevitable for struggling homeowners: with enough time, loss mitigation options are available for all
It is important to note that there is hope for Marylanders facing foreclosure, particularly if they get help early in the process. Homeowners who have income may be able to obtain a loan modification, a forbearance, or work out some other home retention option. For some homeowners, particularly those who are struggling to pay their mortgage and are on the brink of a foreclosure, it may make financial sense to work out a non-home retention option, particularly when the home is seriously underwater. The homeowner should discuss all of their options including a deed-in-lieu of foreclosure or short sale with a housing counselor or attorney. It is important for homeowners to get help from a housing counselor and/or attorney as early in the process as possible. Free assistance may be available, depending on the homeowner’s income. Contact Civil Justice’s foreclosure intake line at (410) 706-0174 for more information.
1 comment(s) so far...
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By Brianne on
2/11/2016 4:29 PM
you may be a great author.I will be sure to bookmark your
blog and will come back later in life. I want to encourage yourself to continue your great posts, have
a nice morning!