Wednesday, June 25, 2008

Foreclosures response takes hold

But ‘tsunami of all tsunamis’ still to come, expert says

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Naomi Brookner⁄The Gazette
Montgomery County code inspector Julia Thom reviews a foreclosed property in Montgomery Village last week.
This story was corrected on June 25, 2008, from its print version.

Home foreclosures are skyrocketing in Montgomery County, jumping six-fold over the last year, hitting Silver Spring, Germantown, Gaithersburg and Montgomery Village the hardest, according to a recently released state report.

Foreclosure activity in Montgomery County — defined as mortgage defaults, sales of foreclosed home and lender purchases of foreclosed homes — jumped nearly 800 percent in the last year, up from 183 events in the first quarter of 2007 to 1,646 events for the first quarter of this year, according to May 2008 foreclosure report from the state Department of Housing and Community Development.

Statewide, Montgomery trails only Baltimore City and Prince George’s County in foreclosure activity, according to information from the Metropolitan Council of Governments, which on Thursday hosted a regional foreclosure summit in Washington, D.C.

Observers have said that Montgomery County has been challenged in responding to the growing crisis, in part because dealing with this kind of issue is not the norm for the jurisdiction.

‘‘I don’t think anybody anticipated that it would reach this level in Montgomery County,” said Rick Nelson, director of the county’s Department of Housing and Community Affairs. ‘‘It was just under the radar screen.”

And Eric Friedman, director of the county’s Office of Consumer Protection, said the county has had to play ‘‘catch-up,” noting that until recently his office didn’t even have a category for logging foreclosure issues.

‘‘Whenever there’s a crisis, in Montgomery County you say ‘Oh, that won’t happen here.’ That clearly wasn’t the case,” Friedman said.

Elected officials representing local, state and federal government from across the region attended the COG conference, which had more than 200 participants. Noticeably absent, however, where elected officials representing Montgomery County.

County Council President Michael J. Knapp was the scheduled moderator for the event, but attended a biotechnology conference in San Diego, Calif., instead. He decided there could be a bigger benefit to the county to have a presence at the biotechnology event, he said. Several county staff members did participate in the conference.

As predictions abound that the foreclosure crisis will only get worse, both the county and state are creating more systems for dealing with it.

The county government has sponsored six foreclosure workshops, the first last July to a stand-room-only crowd at Rockville Library. And on Monday, a new foreclosure-counseling center opened in Gaithersburg that is being operated by a nonprofit to serve the upcounty. It is being funded with county and state money. A similar center, operated by the nonprofit Latino Economic Development Corp., is already in serving the downcounty.

Matching a pool of state money, Montgomery County has put $2.5 million toward foreclosure services including an emergency loan program in addition to the counseling services.

The state has sent out nearly 700,000 outreach postcards to homeowners in high-foreclosure ZIP codes, and set up a Web site (www.mdhope.org) and a telephone hotline (877-462-7555) to act as a clearinghouse of information.

And on April 3, Gov. Martin O’Malley (D) signed a package of laws that halted new foreclosures, slows the foreclosure process and safeguards against future abuses.

But those reforms are only a 90-day ‘‘de facto moratorium” on new foreclosures, foreclosure specialist Jacob Geesing, a partner in the Bethesda-based law firm Bierman, Geesing and Ward, said at the COG conference last week.

‘‘The [court] clerks better be ready for a tsunami of all tsunamis because there’s a huge backlog that’s about to explode,” he said.

Amid the staggering foreclosure statistics, what stunned Knapp perhaps the most was to learn that more than half of all foreclosed homeowners never responded to letters and calls from their lenders. It’s why Knapp wants to steer the brunt of the county’s response toward outreach and education.

‘‘Seems to me the biggest thing we need to do ... is to let people know that there are options,” Knapp (D-Dist. 2) of Germantown said. ‘‘... If we can get 10 percent more people to pay attention, we’ll be way better off than we are today.”

At HomeFree-USA, the counseling center that opened in Gaithersburg on Monday, about 20 homeowners sought help during the first day of business.

State statistics for the first quarter of this year show 301 foreclosure cases in Gaithersburg ZIP codes, a 937 percent jump from the same period in 2007. There were another 143 cases in Montgomery Village in the first quarter this year, an increase of 694 percent.

The county’s housing department started probing the foreclosure crisis with its state counterpart last summer, Nelson said. At the time, foreclosure events had just jumped more than 230 percent from the first quarter to the second, and questionable loans given to under-qualified borrowers in 2005 and 2006 — the now-infamous ‘‘subprime” loans — were failing. Artificially low ‘‘teaser rates” of 3 and 4 percent interest were expiring, and for some, mortgage payments suddenly doubled and tripled. Because county agencies were not equipped to anticipate it, the mounting crisis failed to register.

‘‘It wasn’t something that we needed infrastructure for,” Knapp said. ‘‘For a jurisdiction, especially a jurisdiction that has never seen a situation like this, to be a little slow on the uptake, I’m not thrilled with it, but I think it’s perfectly justifiable ... I don’t think we have anything to be ashamed of at all.”

As for the fixes, Montgomery County is helping to fund a program that seeks to persuade local lenders to refinance problem loans by insuring up to 40 percent of any loss, Nelson said. But that effort has so far seen spotty success.

‘‘Banks have not been necessarily jumping up and down at this point,” he said.

The county and state have also put in $100,000 each to fund the Bridge to Hope program, which provides up to $15,000 in short-term assistance to help struggling homeowners who have fallen behind on mortgage payments. But that is limited to those who can show they will get quickly caught up.

The Latino Economic Development Corp. began offering a variety of services in Montgomery County in 2006, working space at the Gilchrist Center in Wheaton. The group was unprepared to deal with foreclosures and had to adapt quickly, said Executive Director Manuel Hidalgo. The group is handling about 130 foreclosure cases a month, he said.

‘‘Basically, we’ve been inundated,” Hidalgo said at the conference.