Short Reach for Md. Housing Aid

Gov. Martin O'Malley speaks about helping Maryland homeowners avoid foreclosure. In the past year, $17.9 million in state aid has helped 88 troubled borrowers refinance their loans or keep up with their payments. (By Jamie C. Horton -- Associated Press)

Maryland officials tout their progress in other areas, including outreach efforts managed through a network of 32 nonprofit housing counseling groups. The state's hotline received 10,000 calls during the past year and about 35 to 45 percent had a positive result -- from a modification of the loan to a quick sale of the property, they said.

"The efforts of housing counseling agencies have been tremendous," Skinner said.

The refinancing programs have proved more complicated. The state housing department wanted to fund them by selling taxable bonds, but Wall Street was reluctant to invest. The state dipped into its reserves to fund the programs but hopes to get a better reception with tax-exempt bonds later this year, officials said.

But the major stumbling block remains reaching homeowners before late payments ruin their credit scores. The state initially expected to funnel homeowners through Lifeline but found that many were delinquent before their interest rates increased, state officials said. Some simply ignored warnings from their lenders, then eventually made a panicked call to the state hotline or a housing counselor.

"I can't tell you the number of people who call me and say 'I am going into foreclosure next week and I need help,' " said Billy Cogman, executive director of Kairos Development, a housing nonprofit based in Prince George's County. "Okay, we can do a lot of things, but we can't do miracles. . . . There have been a few that we have been able to rescue, but the majority haven't been salvaged."

The state's requirements for getting a refinanced loan can also be difficult to meet. There is little flexibility for a homeowner who owes more than the home is worth. Also, under HomeSaver, for example, the homeowner must have a credit score of at least 580. With one or two missed payments, a homeowner can quickly fall below that threshold, state officials said. Both refinancing programs also require that the payments on the new loan not make up more than 50 percent of the borrower's income.

"Nobody comes in our door who has a ratio less than 60 percent," Harrington said.

Mark Westcott, manager of Corridor Mortgage Group's Columbia branch, said he has attempted to refinance about a dozen homeowners into one of the programs, but each failed. Some homeowners had to prove their income as a condition of the loan for the first time and others owed significantly more than their home's value, he said. "By the time the consumer gets to us, it's usually too late," he said.

Relaxing the rules is tempting but not realistic, state officials said. The loans must ultimately be sold to investors intent on avoiding risky borrowers likely to default, they said.

"We, in many respects, operate like a bank. We have to raise capital to finance these loans," Skinner said. "We have to have investors willing to buy this paper, and if the standards are too loose they are not going to do it."

The larger challenge for the state may be expanding efforts to include lenders willing to issue new loans directly to homeowners. The housing department, Montgomery and Prince George's counties -- which lead the state in foreclosures -- have set aside more than $6 million to entice lenders into refinancing more troubled homeowners. If the borrower defaults, the program would repay the lender up to 40 percent of the loan's value.

Since the program was announced in May in Montgomery County and July in Prince George's, no lenders have signed up.