Maryland Foreclosure Rates Remain Below the National Average

National delinquency and foreclosure rates have increased significantly since last year as more and more American homeowners find it difficult to pay their mortgage obligations. The proliferation of “exotic” sub-prime mortgage products, specifically adjustable rate mortgages (ARM), during the housing boom of the past six years has been the key contributor to the rise in delinquencies and foreclosures.

Sub-prime loans are typically made to borrowers who are deficient on either a strong credit history or capacity to repay their loans. The slowdown in home sales and rising mortgage rates continue to drive foreclosures at substantially higher numbers than a year ago. Further complicating this issue is the fact that approximately two-thirds of the sub-prime mortgage debt issued between 2002 and 2004 is due to reset in 2007. Data compiled from the Mortgage Bankers Association show that although the number of seriously delinquent and foreclosed loans grew significantly higher in 2006, their corresponding rates, or their shares in all serviced loans, grew at a slower pace. More importantly, the growth of delinquency and foreclosure rates in Maryland were in line with corresponding growth rates in neighboring states and in the nation. In addition, the state’s rankings in the growth of delinquency and foreclosure rates last year fell in the bottom two-thirds of the fifty states plus the District of Columbia.

In 2006, the number of seriously delinquent loans, defined as loans that are 90 days or more delinquent or in the process of foreclosure, grew by 21.2 percent in Maryland and by 20.5 percent in the U.S. (Exhibit 1). However, serious delinquency rate, defined as the ratio of all seriously delinquent loans to all mortgage loans serviced, grew by 0.2 percent in Maryland and 0.3 percent in the U.S.  Similarly, the number of foreclosed loans grew by 23.7 percent in Maryland and by 27.8 percent in the U.S., while the corresponding foreclosure rates grew by 0.1 percent in Maryland and by 0.2 percent in the U.S.

Between the first and the last quarter of 2006, the number of all mortgage loans serviced increased by 3.9 percent in Maryland and by 5.2 percent in the U.S. Regionally, Maryland and Virginia recorded the lowest growth rates, while Pennsylvania with a 6.5 percent growth reported the highest rate. The number of Maryland’s sub-prime loans grew by 7.4 percent last year, equal to the national growth rate. Regionally, sub-prime loans grew the most in Virginia (9.8 percent) and the least in Pennsylvania (3.5 percent). Sub-prime ARM loans grew at a significantly higher rate of 73.6 percent in Maryland, compared with the national average growth rate of 47.3 percent. Regionally, the District recorded the highest growth rate of 100.1 percent, while West Virginia reported a decline of 46.6 percent in its sub-prime ARM loans.

The mortgage loan delinquency rate in Maryland, defined as the share of loans that are past due 30 days, 60 days and 90 days or more in all serviced loans, was 4.3 percent in the last quarter of 2006, significantly below the national rate of 5.3 percent and below the corresponding rates in the neighboring states of Delaware, Pennsylvania and West Virginia, ranking the state 33rd in the U.S. (Exhibit 3). The Maryland delinquency rate for sub-prime loans was substantially higher at 12.4 percent, though still below the neighboring states of Delaware, Pennsylvania and West Virginia and less than the national rate of 14.3 percent, ranking the state 32nd in the U.S. Sub-prime ARM loans carried a delinquency rate of 13.9 percent in Maryland, well below the corresponding rates in Delaware, Pennsylvania, West Virginia and the U.S., ranking the state 36th in the nation.

Compared to the first quarter of 2006, delinquency rates were up in Maryland and throughout the nation. Between the first and the last quarter of 2006, the delinquency rate for all loans increased by 1.4 percentage points in Maryland, the same as the national average growth rate but below the corresponding rates in Delaware, the District, and Virginia, ranking the state’s growth rate 24th in the nation. The delinquency rate among all sub-prime loans grew by 4.8 percentage points in Maryland, above the corresponding growth rates in the region and the nation, ranking the state 6th highest in the growth rate nationwide. The delinquency rate for the sub-prime ARM loans grew by 7.2 percentage points in Maryland, slightly above the national growth rate of 7.0 percentage points, but below the corresponding growth rates in Delaware, Pennsylvania and West Virginia, ranking the state’s growth rate in this category 32nd highest in the nation. Similarly, the overall mortgage loan foreclosure rate in the fourth quarter of 2006 was 0.5 percent in Maryland, significantly below the national rate of 1.2 percent and below the corresponding rates in the neighboring states of Delaware, Pennsylvania and West Virginia, ranking the state 41st in the U.S. (Exhibit 4). Maryland’s foreclosure rate for sub-prime loans was higher at 2.0 percent, though less than half the national rate of 4.5 percent and, with the exception of Virginia, below the corresponding rates in the neighboring states, ranking the state 46th in the U.S. The sub-prime ARM loans carried a foreclosure rate of 2.3 percent in Maryland, substantially below the national rate of 5.6 percent and measurably less than the corresponding rates in the neighboring states, ranking the state 48th in the nation.

Compared to the first quarter of 2006, overall foreclosure rates grew modestly in Maryland and throughout the nation. Between the first and the last quarter of 2006, the foreclosure rate for all loans increased by 0.1 percentage points in Maryland, less than half the corresponding growth rates in the U.S. and the District, comparable to growth rates in Virginia and West Virginia, but above the growth rates in Pennsylvania and Delaware, ranking the state’s growth rate 34th in the nation. The foreclosure rate for all sub-prime loans grew by 0.7 percentage points in Maryland, below the corresponding rates in the U.S., the District and Virginia, but above the growth rates in Delaware, Pennsylvania and West Virginia, ranking the state’s growth rate 32nd nationwide. The foreclosure rate for sub-prime ARM loans grew by 0.9 percentage points in Maryland, significantly below the national growth rate of 2.4 percentage points, and below the corresponding growth rates in the region, ranking the state’s growth rate in this category 45th in the nation.